Cathie Wood thinks Bitcoin will go to $1.48 million. Is she right?

With Bitcoin (BTC -0.09%) with its best January performance since 2013, it’s no surprise that analysts are raising their price targets for this suddenly hot crypto. Bitcoin was up almost 40% in January, and that has led to a completely revised outlook for how high this crypto can fly in the coming years.

Cathie Wood of Ark Invest – known for her previously controversial $1 million price target for Bitcoin – has just increased her Bitcoin price prediction. She now believes that Bitcoin could skyrocket to $1.48 million by 2030. But how feasible is this prediction?

The long-term growth story of Bitcoin

According to Wood, the case for Bitcoin at these stratospheric levels is really a story of massive growth on a global scale. Over time, the story goes, Bitcoin will account for a larger and larger share of global assets held by institutions. It will continue to scale globally as more nations accept it as legal tender and as more people use Bitcoin to conduct online transactions.

Image source: Getty Images.

This story becomes more interesting when Ark Invest lays out the specific numbers behind its assumptions. Ark Invest suggests that there will be eight primary market segments (eg “emerging market currency” and “remittance medium”) where Bitcoin will see growth. Based on estimates of the rate of penetration of Bitcoin in each of these markets, it is possible to develop a bearish, a base case and a bullish scenario for Bitcoin’s price.

How Fast Can Bitcoin Grow?

So, for example, Ark Invest suggests that Bitcoin could account for up to 10% of the M2 money supply of emerging markets. So far, only two nations have adopted Bitcoin as legal tender – El Salvador and the Central African Republic – so this seems a bit optimistic. According to some economists, nations struggling with hyperinflation or devalued currencies may decide to embrace Bitcoin.

Ark Invest also suggests that Bitcoin could take 25% of the “remittance asset” market and 50% of the “digital gold” market. So imagine one in four migrants around the world sending money back to family and loved ones in the form of Bitcoin, and one in two central banks around the world deciding to build up their Bitcoin reserves instead of their physical gold reserves . In addition, Ark Invest suggests that Bitcoin will soon make up 6.5% of institutional investors’ portfolio holdings.

All these numbers are aggressive, but not completely unthinkable. It really depends on how you view global growth, and how much faith you have in fiat currency.

From my perspective, the “base case” estimates provided by Ark Invest make a lot more sense than the “bullish case” numbers. For example, in a baseline scenario, Bitcoin would only account for 3% of the M2 money supply of emerging markets. And Bitcoin will only make up 2.5% of institutional investor portfolios. The problem here is that even Ark Invest acknowledges that these “base case” assumptions only support a future price of $682,800 for Bitcoin, well below the pie-in-the-sky figure of $1.48 million.

Do the numbers make sense?

Also, it is useful to stress test these assumptions about Bitcoin against current asset values ​​in global markets. Given that Bitcoin has a fixed coin supply of 21 million, a target price of $1.48 million implies a total market capitalization of $31 trillion.

How big a number is it really? Well, the total value of the world’s physical gold supply is estimated to be worth around $12 trillion, so Bitcoin would be worth more than 2.5 times all the gold in the world today. Also, the total value of S&P 500 is approximately $32 trillion. So, Bitcoin would be worth almost the same as the 500 largest publicly traded companies in America today.

For that reason, I don’t think $1.48 million is a reasonable price target for Bitcoin. Even a $1 million price target seems like a bit of wishful thinking on the part of the Bitcoin bulls. That would imply a market cap of $21 trillion, which is nearly 10 times the current market cap of apple. Would you rather own all the Bitcoin in the world, or all the equity in 10 different Apple companies?

While I’m long-term bullish on Bitcoin, I also think it’s important to have a sense of scale here. If Warren Buffett thinks the value of all Bitcoin in the world is not even $25, and Cathie Wood thinks the value of all Bitcoin in the world is $31 trillion, a rational person would say that the true value of Bitcoin is somewhere in the middle. I am optimistic that Bitcoin will eventually regain its $1 trillion market cap – I just think it will take longer than some people think.