Bitcoin hit an all-time high Tuesday, touching $ 19,920 in the morning before slipping to the low $ 19,000s later in the day. Analysts and investors have been announcing new price targets for the cryptocurrency, often predicting that it will skyrocket to many multiples of the current price.
But the basis of those estimates is still vague – Bitcoin generates no cash flow and is rarely used for transactions. It’s software that allows people to negotiate, and is not controlled by any single entity – the software operates on computers that are set up worldwide.
While Bitcoin is still moving as much as 5% in an hour, it can be difficult to pinpoint exactly why.
Analysts used to claim the price had something to do with Bitcoin’s “mining” difficulty – the cost of electricity and the equipment it takes to complete the equations necessary to create new Bitcoins. However, given the volatility and unpredictability of the asset, few still quote this metric.
New metrics are emerging. BTIG analyst Julian Emanuel partially analyzed the price of Bitcoin by comparing it with the
(NDX), which first peaked in the dot-com bubble and then took years to reach that summit again. With that in mind, he thinks it is feasible the price will go to $ 50,000 by the end of next year.
“It took 14 years for NDX to rise above its parabolic ‘blow head’, then 6 years to rise another 150%,” he wrote. “Bitcoin seems poised to surpass its 2017 parabolic ‘blow head’ in just 3 years. If the pace of Bitcoin’s rise kept pace with the last three years and the rally’s rate was similar to NDX, Bitcoin’s $ 50,000 per Bitcoin is a reasonable 2021 year-end Price Target. ”
Tyler and Cameron Winklevoss, big Bitcoin holders who founded a cryptocurrency exchange and a Gemini custodian, recently predicted that the price could go to $ 500,000 “one day” on the theory that it eventually replaces gold, which is now worth over $ 10 trillion.
Others also see the total value of Bitcoin one day rise to the trillions, from its current levels of around $ 350 billion. Michael Saylor, CEO of software company Microstrategy (MSTR) and a recent Bitcoin bull, said in an interview with Barron’s that Bitcoin solves a “$ 250 trillion problem” – that is the total value of fiat currency in the world, which he believes be rapidly being depreciated because governments are printing money.
If Bitcoin becomes a reliable financial mechanism for solving that depreciation problem, it could be worth half of that $ 250 trillion, he argues. If its total value was $ 125 trillion, each Bitcoin would be worth about $ 6 million. “I think it’s possible,” says Saylor.
Justin d’Anethan, sales manager at a digital asset company
he said he doesn’t like putting a price target on Bitcoin, because he thinks the price is simply based on public sentiment about the value of having a decentralized, scarce digital asset. Gold is the nearest corollary. “If we take that approach, the potential for BTC is huge, not only because there is enough space to hold up to the total value of gold, but because it could grow too large for it,” he wrote in e- mail to Barron’s.
This is why valuing Bitcoin can feel like a circular argument. It’s worth more because people think it’s worth more – and even such large numbers can invest eggs. That, of course, also makes it dangerous. Inversions in feeling happen quickly. And that’s why many fund managers continue to tell clients that there are also a number they need to consider when looking at Bitcoin: $ 0. It’s not inconceivable that their investment could be completely wiped out, either due to government action or a disastrous software issue such as a hack (although attempts to hack Bitcoin have so far been unsuccessful). Unlike a real asset, there would be nothing left to sell for scrap.
Write to Avi Salzman at [email protected]