With big bitcoin breakthroughs last week, you’re likely wondering what a realistic price target is for the world’s most popular cryptocurrency from here.
The SEC finally approved multiple bitcoin exchange-traded funds (ETF) last week. At the same time, regulators warned that the crypto is risky.
But risk is part of any investment.
ETFs make it easy to own assets. This eliminates the need to open a special account or create a wallet for bitcoin. As my colleagues Adam O’Dell and Matt Clark pointed out earlier this week, investors can now own crypto in their brokerage account.
Mainstream access to crypto means it’s important to have a fundamental model for valuing bitcoin.
Fundamental models are popular in stocks. Analysts believe a company is worth the discounted value of its future cash flows. Based on that, they create models with dozens of metrics to value stocks.
Adam went through this process when developing his proprietary Green Zone Power Ratings system. Half of his six factors are based on fundamentals (Value, Quality and Growth), while the other three factors focus on price-based metrics (Momentum, Size and Volatility).
In these models, cash flows result from a company’s operations.
The problem is that bitcoin doesn’t offer future cash flows in the traditional sense.
But we can work around that.
Valuating Bitcoin and It’s Next Price Target
When someone buys bitcoin, they expect it to increase in value. Future cash flows result from selling an asset at a higher price.
This means there must be a model to value what bitcoin should be worth in the future. We can create a simple one with one assumption — that individuals and institutions will allocate a small percentage of their portfolios to crypto.
From that assumption, we can see that the value of crypto will depend on that percentage allocation.
If investors allocate 10% of their portfolio to crypto, tens of trillions of dollars will flow into that market. If they allocate 5%, half of that amount will flow into crypto.
So valuing crypto is dependent on two variables:
- The percentage allocation.
- And the value of global wealth.
The second variable is actually easy to find. UBS estimates that global wealth will reach $629 trillion by 2027.
If investors allocate 1% of their capital to crypto, the value of that market would be $6.29 trillion.
Of course, we’re still in the early stages of mass adoption. Currently, less than 0.3% of global wealth is in crypto.
To be conservative, let’s say the portfolio allocation to crypto doubles over the next three years, reaching 0.6%. Bitcoin, being the most popular and well-established crypto, represents about half of the total market. That means bitcoin would be about 0.3% of global wealth, making it worth more than $1.8 trillion.
With that value, each bitcoin would be worth about $96,000. That’s more than double today’s price!
This model ignores the number of coins and the technological details of halving and other technical concepts. But we don’t need any of that to value bitcoin with this approach.
All we need to know is demand for bitcoin should increase now that it’s accessible. And higher demand leads to higher prices.
Of course, bitcoin isn’t going to be the only crypto that benefits from mass appeal.
Spotting the ones that have potential, while ignoring the pretenders is going to create some incredible profit opportunities in the coming months and years.
And if you want to follow one of the best in the business, I can’t recommend my colleague Ian King enough.
He’s been tracking this corner of the market for years now, finding multiple triple-digit crypto trades for his subscribers along the way.
And he’s spotted a supply crunch that is fueling the next million-dollar crypto opportunity.
Click here for details from the man himself…
Until next time,
Mike Carr
Chief Market Technician
