Let’s talk about predictions. I am specifically referring to the predictions of others. What are people saying about the future price of bitcoin? What are the projections? The Stock / Flow model popular by PlanB is often used to make price predictions. This is a model that emphasizes Bitcoin’s scarcity and emphasizes supply and halving. In the process of forecasting, charts are typically used on the principle that history repeats itself. But is continuous exponential growth possible in an infinite system? I mean, can the price of bitcoin go up forever? What is the ceiling
People who are a little too skeptical of overly fantastic predictions are often referred to as “bearish”. It turns out that if you have doubts that Bitcoin can hit $ 10 million in a couple of years, you’re bearish. It’s not about being bearish or bullish. The problem is that in some cases, Bitcoin would have to transcend the global economy and the overall capitalization of money to be able to achieve such numbers. “Really?” In other words, planet earth would be a desert. We would only have power plants, miners, computer networks, and billionaires in Bitcoin. But what about the production of goods and services? Do all the predictions make sense?
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Using round numbers, the United States’ gross domestic product (GDP) is approximately $ 20 trillion, the European Union is $ 16 trillion, and China is $ 13 trillion. The world is $ 73 trillion. According to the IMF, the global economy contracted by 4.9% in 2020. However, growth of 5.4% is expected for the next year. We’re talking about $ 3.9 trillion a year growth, assuming we keep the same growth rate after 2021. Something that would be very difficult, by the way.
Now let’s talk about the capitalization of gold. In this case, it’s $ 9 trillion. The USA, Germany, the IMF, Italy, France, Russia and China are among the most important gold holders. Although gold is a commodity present on the periodic table and in demand in industry and jewelry, it is essentially a speculative asset. That said, it’s an unproductive asset. With that in mind, gold could fall into the collectibles category. In the financial world, for example, art is also a speculative good. But art is not fungible. Diamond is a little more fungible. However, it is not as fungible as gold.
Of course, gold is special because governments have gold reserves. On the one hand, gold is commonly used as a background for issuing bonds. It is no accident that many governments do not have custody of their own gold. Gold is usually in places like London or Switzerland. That’s because it is much easier for a country in search of funding to exchange gold in a London warehouse than in the backyard. On the other hand, gold is used as a currency stabilizer in the monetary policy of most countries. Suppose a coin X becomes too weak. Then the government can sell gold to eliminate the liquidity. Or you can buy gold for liquidity. In other words, you can rearrange your reserves to fuel your desired monetary policy.
If the price of gold falls too low, it means that global reserves would be drastically reduced. This would affect the financing capacity of many countries. In addition, this would affect the value of currencies. Because of this, there is an unspoken agreement around the world that the price of gold should remain relatively stable. In other words, gold holders take care of their market. It is no coincidence that the IMF is one of the most important gold holders in the world. Gold is a monetary compensation mechanism. Gold is a highly consolidated network. Governments and banks have a keen interest in maintaining the gold market.
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When we talk about gold, of course, we are mainly talking about wealth transfer, as it is an unproductive good. The mainstay of the economy is not gold or the dollar, but production. According to the CIA, the amount of money worldwide is around $ 80 trillion. The market capitalization of the entire SP 500 is now $ 30 trillion. The SP 500 owns nearly 85% of all public companies in the US. This is about companies that produce goods and services.
Man needs certain things in order to live. That means that the economy must produce goods and services, because unfortunately gold, the dollar and bitcoin are not eaten. I’m trying to explain here that production is extremely important. And the capital available for investing in non-productive assets is not infinite.
When bitcoin hits gold’s market cap, it would set the price per unit to $ 500,000. When bitcoin hits $ 1 million, we will get closer to the United States GDP and the total capitalization of the SP 500. This would mean that a non-productive asset monopolizes almost all of the capital available for investment. What would happen to gross domestic product if almost all of the capital invested went into a non-productive asset? What about wealth creation?
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Taking into account economic growth in the coming decades, all of the figures mentioned here would increase. World GDP will logically be much higher. Like the capitalization of Gold and the SP 500. With that in mind, it is possible that Bitcoin could reach a capitalization in the range of $ 8 trillion or more. For example, the Apple company has a capitalization of $ 2 trillion. The FAANG group (Facebook, Apple, Amazon, Netflix, Google) currently has a capitalization of more than 4 billion US dollars.
Here, however, you step ashore for a moment. When making predictions, we cannot simply add numbers to a calculator using previous graphs and the inventory / flow model. It is important to consider the capital that is available for investing in non-productive assets. We have to use a reasonable percentage of the cake. We can’t add numbers crazy. Makes no sense. It is also not that easy to replace gold. Governments are not going to topple their reserves for the simple fact that Bitcoin caught on. We can’t be so delusional.
Here is a present. Some Bitcoin Price Predictions (data from here):
$ 26,000 to $ 39,000
I don’t know, but I hope it’s over $ 20,000.