Price Predictions

Gee, ATHs. I am incredibly excited for what will happen this coming year.

I'm here today to talk about price predictions for Bitcoin. I've understood most of the other things to understand about Bitcoin but grokking the price, or rather, the purchasing power of Bitcoin after hyperbitcoinization (The Final Parabola) is rather difficult.

Caveats

Purchasing power is not a scalar, but a vector. The same money, over time, can have different purchasing power for different goods. We can see this clearly in the inflation rates of consumer goods over the last several decades, which has been much lower than the inflation rates in scarce goods such as shares of the US economy.

The vector of purchasing power of money will have a different shape than today after hyperbitcoinization because Bitcoiners will choose, through the collective sum of their individual actions, how assets and goods get repriced. For a specific example, I believe gold will get devalued much more than promising tech companies such as Apple.

With this caveat in mind, I will attempt to predict the future purchasing power of Bitcoin in today's dollars.

One last thing is that as Bitcoin ushers in world peace and enhanced productivity, those factors along with technological advancements will increase the purchasing power of the same amount of Bitcoin over time. I'm not factoring that into my calculations here.

Typical heuristic

The typical heuristic is to consider the total wealth of the world, which is about $900T, and divide some percentage of that by the Bitcoin supply, which is 21mm. The logic is that Bitcoin will take some amount of market share from the total amount of world wealth.

Optimistically, if we say Bitcoin captures ALL of the world's wealth, then Bitcoin becomes worth $40 million.

One thing that may be wrong with this approach is that the market cap of Bitcoin may actually be greater than the market cap of all "stuff" in the world. For example, you could envision that if there's X stuff in the world, people collectively choose to keep 5X in Bitcoin savings.

It's hard to be precise in that calculation though, because a lot of today's "wealth" is actually just financial accounting magic and monetary premiums on real estate and equities.

Anyways, it's not that I don't follow the logic of this approach, but it's not bottoms-up enough for my liking. Let's take a look at some other approaches.

Method 1 - Rough estimate of fiat hyperinflation metric

There is about $120t of fiat currency worldwide.

At what price will we begin to see Bitcoin wealth-effect-induced hyperinflation? Certainly not when the Bitcoin market cap is equivalent to the fiat currency market cap. Bitcoin being anyhere from 10x to 100x the fiat supply seems reasonable.

However I don't like this approach because we don't really know what % of fiat is circulating and we're not taking into account Bitcoin's circulating supply either. Also, as Bitcoin creates hyperinflation, existing assets will get repriced higher as well, reducing purchasing power.

This method isn't robust in my view. However it's very bottoms-up and the key thing it shows is that Bitcoin won't reprice things until Bitcoiners start spending their Bitcoin and the world is FORCED to reprice things.

Method 2 - Circulating supply to GDP ratio

This is my preferred method of calculating the future Bitcoin purchasing power.

World GDP is about $100t today. That GDP is facilitated by some amount of circulating fiat currency which is SPENT to contribute to that GDP number, which means the amount of circulating fiat currency must be less than $100t, because a lot of fiat currency is probably spent multiple times per year.

If we very conservatively say that the velocity of money contributing to this GDP is 2 (spent 2 times per year) then the amount of fiat currency is $50 trillion.

Now, in the future, predicting how much of the Bitcoin supply will be circulating and facilitating this same GDP, we can make a purchasing power prediction.

If 5% of the Bitcoin supply is circulating, that means $50t = 5% of the Bitcoin supply. This means Bitcoin should be about $50 million dollars in today's money.

Of course, the math changes depending on the velocity of money today baked into the $100t GDP statistic, as well as the future circulating supply of Bitcoin, as well as how the purchasing power vector will change through hyperbitcoinization.

Conclusion

All the methods actually end up giving similar price predictions for Bitcoin in today's purchasing power. As we all know, the nominal fiat price of Bitcoin is going to infinity, so nominal price predictions in the future are pretty meaningless.

Some part of me still wants to seek a different heuristic, in the hopes that I end up with a reasonable argument for a much higher Bitcoin value at the end of all this. And I'll probably end up thinking about it randomly anwyays. But I think there's so many variables; and we all know it's going up anyways, so the best approach may be to simply hold tight and see where the dust settles when it's all over.

One last thing - by the end of all this, there won't be any Bitcoin "floating around" that you can just pick up for some fiat. Fiat will be WORTHLESS. The only Bitcoin you can get in the future will be from mining or trading your scarce resources such as goods or labor for it. Every circulating Bitcoin will be being spent by a holder to purchase something. Every single person in the world will be attempting to hoard Bitcoin.

It's time for me to move on to a new hobby rather than fantasizing about hyperbitcoinization all day. Till next time.