Bitcoin has many sides. For some people it protects against inflation, some hope for an exponential price increase, and for some it is the only way to store value at all.
The future of bitcoin
By and large, Bitcoin is a decentralized, deflationary, secure, non-discriminatory, limitless and permission-free asset that is currently turning countless industries upside down. It is not without reason that BTC is adopted by society faster than the Internet. Because the internet has democratized our knowledge exchange, Bitcoin democratizes our money. But as with the internet, we cannot know today what Bitcoin can achieve in the future. But through thought experiments and models we can envision a potential future and see how realistic it is and what it would mean for us. This article has exactly this aim: It examines a possible place that Bitcoin could occupy in society. In this rather optimistic scenario, a BTC could be worth several million euros.
Where does the number 1 cryptocurrency stand today?
To assess Bitcoin’s progression, one can look at the properties of money, the network’s adoption curve, and key milestones.
Even if the question “What is money?” With its dozen possible answers and definitions, is too complex for a pricing model, all funds always follow four phases:
- Collectible: As with pearls or shells thousands of years ago, money is first a collector’s item. It is hoarded and viewed by dealers and collectors. Because value is inherently subjective, there are hundreds of different goods in a society without established money that can be exchanged for other goods or services. This is called a barter company.
- Value stores: For the collectors in these barter societies who want to create value for themselves and their families, a game-theoretical question quickly arises: “Which collector’s item will have the most value for other dealers in the future, or how can I get the value I have earned Best to keep over time and space? ” Since all traders ask themselves this question multiple times and revise their answers, they will eventually agree on a single (or a few) good. This geographically and socially accepted good is being adopted by more and more people for its ability to hold value over time.
- As the number of users increases, so does the price, insofar as it is hard money. Hard money is defined by the fact that it is difficult to produce relative to its existing quantity – so it is a scarce commodity. The purchasing power of this good will eventually plateau once most people hold it as the influx of people who want the good as a store of value dwindles. Bitcoin is currently in the first part of this phase.
- Medium of exchange: once the purchasing power of money has stabilized, it is suitable for trading. The opportunity cost of using this money for exchange has decreased enough that it can establish itself as a medium of exchange. Many people, especially in the early years of BTC, misjudged these huge opportunity costs – this is how the famous story of an early Bitcoin user who paid 10,000 Bitcoin for two pizzas came about.
- Unit of account: If a society’s exchange of values largely takes place via money, goods and services will be priced in this over time. When Bitcoin reaches this fourth and final phase, we would see the price of a bread in the supermarket in the number of satoshi instead of euros.
What space could Bitcoin take for itself?
If the adoption of Bitcoin continues as fast as it has before, a large part of humanity will soon have a Bitcoin address and accept Bitcoin as a means of payment. This means that most payments worldwide could be made via Bitcoin.
To understand how big this market is and what it would mean for the price of Bitcoin, we can look at the global money supply.
Amount of money: how much value could Bitcoin be traded in the future?
To answer this question, we can analyze the narrow and broad money supply. The worldwide tight amount of money includes all cash and money on current accounts, which can be easily exchanged for cash, and amounts to 35.15 trillion euros worldwide. If we want to calculate the broad amount of money or the total amount of money in the world, money market accounts, savings and fixed-term deposits are added to the narrow amount of money. The broad money supply is 111.02 trillion euros worldwide. Assuming all this money would go through Bitcoin and most things would be priced in Bitcoin, Bitcoin were not only a medium of exchange, but also made the leap to the unit of account.
Theoretically, however, other assets, such as stocks, real estate and government bonds, could also be transferred to the Bitcoin blockchain. The reason for this transfer is the security of the Bitcoin network, which generates absolute trust. People will not passively watch the devaluation of fiat currencies forever, but will switch to better money, bitcoin. In this way, the Bitcoin network would become the largest and most secure store of value mankind. All valuable goods can be entered and exchanged in the network’s property register.
17.1 million euros per BTC?
Now let’s find out what that would mean for the price of BTC. According to the Credit Suisse Global Wealth Report, all global financial assets are worth EUR 360 trillion today. Assuming Bitcoin actually became the world reserve currency, this would correspond to a price of 17.1 million euros per Bitcoin (360 trillion euros / 21 million BTC). It is important to mention here that we are assuming the current value of one euro. If the euro continues to devalue, the Bitcoin rate automatically rises because the unit of measurement (the euro) becomes weaker. If Bitcoin were to absorb “only” 10 percent of the assets in its system, this would correspond to a price of 1.71 million euros. To some readers this price may seem realistic and likely, to others it sounds like an impossible event. How Bitcoin will really develop and which assets will be transferred to the network will only be able to show us in the future.
About the author
Jonas Affolter is the managing director of Affolter Consulting and works as a Bitcoin consultant. On his homepage he runs a blog in which he simply explains Bitcoin-relevant topics and makes market updates.
Disclaimer of liability
This article is not intended as investment advice and is for informational purposes only. The views mentioned in this article are authored by the author and may contain errors.