4th December 2017
Estimating the maximum inter-generational value of Bitcoin – and its more likely value by around 2045 AD
All predictions about Bitcoin value to date have **always** UNDERESTIMATED reality. But its value will finally stabilise.
Its value will stabilise in an inter-generational sense – i.e. between today’s world population and the future world population. And in relation to alternative crytocurrencies and technologies.
Its equilibrium value equation is on the following lines:
Value BTC = f(global population, global wealth, distrust of central banks and governments, cost of production of BTC, competition from alternative cryptos, risk of quantum computing, risk of regulatory capture) + delta
where delta represents variables not included above + random variation/ risk/ herd mentality.
Given this, it is not unreasonable to expect BTC to reach around a million USD at least within 30 years from now – with a small probability that its value might fall to $0.
A RULE OF THUMB METHODOLOGY
There is a maximum supply of 0.0025 BTC per person in this world. Most families store their wealth in their house, with around 20 per cent of a home’s value in financial assets. If BTC captures a quarter of this 20 per cent, then its value should stabilise at 0.25×0.2xvalue of a house/ divided by the size of an average family = value of 0.002 BTC
say, the value of a house is $100000 (this is an upper limit, since global average is lower) and there are five members in a family. Then $1000 = 0.0025 BTC.
Therefore upper bound equilibrium BTC value = $0.5 million USD.
Clearly there will be many alternative currencies + risks, so this is the extreme upper bound. Thereafter it will stabilise and grow at the rate of global productivity growth – unless it has been already overtaken by a quantum computing based cryptocurrency.
To be conservative, given competition + risk, one should estimate the max value of BTC to be around $100K and invest accordingly. There is also a small but positive probability that BTC’s value could drop close to $0 USD.
The rational expectations theory tells us that the maximum equilibrium value will be achieved fairly quickly, perhaps within the next 5-10 years.
NOTE: Alternative methodologies give BTC’s maximum value in the range of $1 million. I don’t see that happening easily, since people need to diversify and there will be diversification not only across asset classes but across the 100s of alternative cryptocurrencies.
It is likely that BTC will grow rapidly to around $50K – even within 2018, and thereafter slow down dramatically for the next five to ten years.