How outrageous is a $500,000 price target for Bitcoin?

Michael Saylor, a high-profile Bitcoin (BTC -5.80%) bull, is at it again: He just posted a $500,000 price target for Bitcoin. Speaking recently at MarketWatch’s Best New Ideas in Money festival, Saylor suggested that Bitcoin could reach $65,000 within four years. From there it’s to the moon. He believes the digital currency could be valued at $500,000 within the next decade.

Of course, investors need to take Saylor’s prediction with a grain of salt as it is likely biased, considering how much of his own fortune is tied up in Bitcoin and how much his company Micro strategy (MSTR 2.94%) have invested in tokens. But it’s still worth asking: Is a $500,000 price target really that outrageous for Bitcoin?

Bitcoin’s market value

To put the $500,000 price target into context, it’s important to know that the maximum supply of Bitcoin will ever be 21 million coins. Satoshi Nakamoto, the pseudonym of the creator of Bitcoin, decided that there can never be more than 21 million bitcoins. So it is quite easy to calculate how different Bitcoin price targets can lead to different implied market values.

A price target of $500,000 implies a total market cap for Bitcoin of $10.5 trillion. The total market capitalization of the cryptocurrency right now is approximately $360 billion.

Image source: Getty Images.

According to Saylor, his Bitcoin price target is based on the current total market value of gold, which is approximately $10.5 trillion. This value can be obtained by multiplying the current spot price of gold ($1,650 per ounce) by the amount of the world’s above-ground gold reserves. At the start of 2022, these gold reserves were estimated to be around 205,238 tonnes, according to the World Gold Council.

So Saylor is basically saying that Bitcoin will one day have the same market value as gold has today. He believes this is realistic because the cryptocurrency is “digital gold”. From his perspective, the token acts just like gold as a hedge against inflation and as a long-term store of value. Even if you believe this, you have to admit that a lot has to go right for Bitcoin for it to match gold’s current market value.

Bitcoin price target

That said, many very smart investors have posted some equally outlandish Bitcoin price targets in the past. For example, venture capitalist Tim Draper predicted that Bitcoin would reach $250,000 by 2022. Software executive John McAfee once predicted that Bitcoin would reach $1 million by 2020. Most recently, ARK Invest’s Cathie Wood predicted that it would reach $1 million by 2030. So see all this in context, Saylor’s course goals aren’t the most outrageous, after all.

The most outrageous price target ever?

Wall Street is known for coming up with some wild valuation targets. During the first Internet boom, analysts rushed to post higher and higher price targets for Internet stocks. None of these stocks could be valued using conventional calculations, leading to some pretty crazy valuation models. Valuation became more of an art than a science.

The price target widely regarded as one of the craziest ever at the time was the $400 prediction made by Wall Street analyst Henry Blodget for Amazon (AMZN -0.64%) back in 1998 when it was trading at $240. At the time, few predicted that Amazon would become the giant it is today. Blodget was laughed at, called reckless and irresponsible and mocked. Within three weeks, however, Amazon had blown through the $400 barrier. The rest, as they say, is history.

Will Bitcoin Ever Reach $500,000?

Quick back-of-the-envelope calculations make it almost inconceivable that Bitcoin could ever go to $500,000. That would require a major reset of the global economy, the emergence of Bitcoin as the world’s reserve currency, and the replacement of physical gold with digital gold.

But strange things have happened. Just ask Blodget. He has been fully vindicated as Amazon has become one of the most dominant companies in the world, with a total market capitalization of over $1 trillion. And guess what: In 2017, Blodget suggested that a $1 million price target for Bitcoin—back when it was trading at just $2,000—wasn’t so crazy after all.