Key Points
Over time, Bitcoin’s market cap should advance toward the $34 trillion valuation of gold.
Besides being portable, transactable, and censorship resistant, the crypto’s hard supply cap is a compelling trait.
It’s critical for Bitcoin to become a favored reserve asset among central banks.
- 10 stocks we like better than Bitcoin ›
It's almost impossible to argue with the assumption that perhaps all investors would've loved to have owned Bitcoin (CRYPTO: BTC) over the past decade. That's because the leading digital asset's price has skyrocketed 19,300% during that time, even after a sharp pullback in recent weeks.
However, Bitcoin still experiences periods of extreme volatility. This is exactly what's going on right now, as it trades 41% off its peak. While the so-called experts will always try to sound smart and act as if they know exactly what's going on, the reality is that pinpointing the reasons for the leading cryptocurrency's recent dip is extremely difficult.
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Ultimately, it's always important for investors to keep their focus on the long term. With that being said, I predict that Bitcoin's price will reach $850,000 in 10 years.
Image source: Getty Images.
Looking at the math
For Bitcoin to hit $850,000 by early 2036, its price would need to increase by about 1,060% (based on the current price of $73,200). Astute readers will quickly realize that this would imply a much lower rate of return than what was achieved in the past. Given that Bitcoin is no longer some esoteric financial asset, and that it's recognized on a global scale, the gains should come down going forward. Naturally, there is less upside as the risk of investing in it subsides.
Comparing Bitcoin to gold makes the most sense. The estimated value of all of the gold that's above ground is more than $34 trillion. I believe that it's totally possible that Bitcoin's market cap gets to half that of the precious metal, or about $17 trillion.
Bitcoin's market cap currently sits at $1.26 trillion. It would need to rise more than 13-fold to hit the expected level. If it gets to that point, it would still have meaningful upside. For comparison's sake, the global equity market and bond market combined are measured in the hundreds of trillions of dollars.
Bitcoin and gold in the ultimate showdown
Because of gold's strong performance relative to Bitcoin in the past couple of years, investors might be critical about the crypto slowly approaching the shiny metal's valuation. That's understandable.
But I think it's important to pay attention to Bitcoin's fundamental characteristics. Yes, it's a relatively new financial asset. However, it's portable, transactable, divisible, censorship-resistant, and verifiable. And it has a hard supply cap, introducing scarcity, which is its best trait.
Of course, the people in charge of managing massive pools of capital, namely central banks, need to start viewing Bitcoin in the same way that they look at gold. I think this will happen over time, as Bitcoin continues to infiltrate the traditional financial services industry and wins over regulators and politicians.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
