As recently as last fall, a Bitcoin price prediction of $3,000 in 2017 would have seemed absurd.
In early October, the Bitcoin price was just a bit north of $600. Earlier this week, the price of Bitcoin breached $3,000 for the first time - a gain of 500% in just nine months.
That brings us to Wences Casares, the CEO of the Bitcoin wallet startup Xapo and a member of PayPal Holdings Inc.'s (Nasdaq: PYPL) board of directors. In a May 22 speech to Coin Center, Casares repeated his Bitcoin price prediction of $1 million per Bitcoin in 10 years.
His reasoning is that Bitcoin will emerge as a "global standard of settlement" - the ultimate reserve currency.
Casares first made the prediction in 2014, when the cryptocurrency was in free fall as a result of the collapse of the Mt. Gox Bitcoin exchange.
While a Bitcoin price prediction of $1 million may seem far-fetched, predictions that Bitcoin would reach $3,000 this year would have struck most folks outside the cryptocurrency community as ridiculous.
But Bitcoin, which was worth just $0.003 shortly after its launch in January 2009, has consistently defied skeptics. Bitcoin has gained 88,999,900% since then. (That would have turned $100 into $89 million.)
To get to $1 million from the current price of about $2,300 would be a relatively easy 43,378% jump.
But does that make any sense? What could possibly drive the price of Bitcoin to such astronomical levels?
Surprisingly, there are multiple scenarios in which Bitcoin could reach the $500,000 to $1 million range...
How a Lofty Bitcoin Price Prediction Could Come True
Last month Jeremy Liew, the first investor in Snapchat, and Peter Smith, the CEO and co-founder of Blockchain, developed a Bitcoin price prediction of $500,000 by 2030. They cite three catalysts in particular.
First, Smith and Liew argue that more people will use Bitcoin for remittances, the practice of foreign workers sending money to their countries of origin.
Second, they believe the atmosphere of political uncertainty in both developed nations, such as the United States, as well as developing countries, will drive more people to buy Bitcoin as a safe-haven investment like gold.
Third, Smith and Liew said the use of smartphones for transactions will open the door for Bitcoin. They estimate that Bitcoin could account for as much as half of the world's non-cash transactions by 2030.
The Best Pot Stocks: After months of research, we've found the most lucrative and fastest-growing legal pot stocks in America. And for a limited time, you can get all the details for free. Learn more...
Smith and Liew calculated that the rising usage will result in the average Bitcoin user holding $25,000 worth of the cryptocurrency by 2030. They also assume that the number of Bitcoin users will grow from 6.5 million to 400 million.
Multiplying those two numbers (25,000 times 400 million) gives a Bitcoin market cap of $10 trillion. Dividing that by the fixed supply of Bitcoin in 2030, 20 million, yields the $500,000 Bitcoin price prediction.
Another possibility is hyperinflation...
The U.S. Government Will Boost the Price of Bitcoin
Rapidly increasing borrowing and spending by the federal government could undermine the value of the U.S. dollar to the point that inflation spirals out of control.
This isn't as far-fetched as it may seem.
When the Social Security Trust Fund runs out in 2034, the U.S. government will either need to chop benefits by 25% or jack up payroll taxes on those still working. Politics being what it is, Washington is likely to shun both options and elect to borrow the needed trillions.
Related: How to Buy Bitcoins - Your Guide to Digital Profits
That could easily lead to hyperinflation, in which the prices of everything would skyrocket. Bitcoin would skyrocket faster as a safe haven and store of value.
The price of Bitcoin will benefit even from the tame inflation we have now. After all, the value of the U.S. dollar has declined 97% since 1913. Because Bitcoin is deflationary by definition - it has a fixed supply of coins created at a decreasing rate - it can only gain against the dollar.
But the best chance Bitcoin has of reaching $1 million over the next decade or so could result from a global decision to demote the U.S. dollar from a role it has held for nearly a century...
This Would Send the Bitcoin Price to $1 Million Territory
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
If Bitcoin replaced the U.S. dollar as the world's reserve currency and became the primary means of settlement in global trade, one bitcoin would need to be worth about $1 million.
This actually has a realistic chance of happening. The run of each of the last five global reserve currencies has lasted about 100 years. The U.S. dollar is due to be replaced.
It's already being discussed...
China has made it clear in recent years that it would like to see the U.S. dollar replaced. And the International Monetary Fund (IMF) has floated the idea of replacing the dollar with the "special drawing rights" (SDR) basket of major currencies it has created.
No one's suggesting another national currency replace the dollar, particularly not China.
"The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations," China's central bank governor, Zhou Xiaochuan, said in a 2009 speech at the Council of Foreign Relations.
The SDR may seem like an obvious choice. But after 48 years, it hasn't gained any traction as a unit of global trade. And many countries are wary of giving the power of a reserve currency to a global, multilateral organization that's beyond their control, like the IMF.
This is where Bitcoin comes in. This is what Casares was talking about...
Why Bitcoin Is the Logical Choice to Be the World's Reserve Currency
Unlike the SDR or a national currency, Bitcoin has no central control. It's governed by the software code that runs the network. And it's already being used in countries around the world. That makes Bitcoin the perfect compromise solution.
But Bitcoin would need to have the value required to function as a global reserve currency. An extended, 10-year transition from existing reserve currencies would allow the price of Bitcoin to reach the levels needed.
The total value of all foreign currency reserves is about $11 trillion. That means total value of all bitcoins would need to be in that neighborhood.
A Bitcoin market cap of $11 trillion, given the estimated 20.5 million bitcoins that will exist in 2030, suggests a Bitcoin price of $536,585.
But that doesn't account for lost or invested bitcoins, which won't be available for use as a reserve currency.
Wedbush Securities has estimated the number of bitcoins available for transactions in 2025 will be 67% of the total created. In 2030, two-thirds of the total bitcoins created will be 13.735 million. To get the same total value of $11 trillion, the price of Bitcoin would need to be around $800,000.
Even if Bitcoin is adopted as the primary global reserve currency, it probably won't account for 100% of the transactions. That means the Bitcoin market cap would not need to be $11 trillion.
On the other hand, this calculation doesn't factor in other likely large-scale uses of Bitcoin, such as the remittances Smith and Liew cited. And many already are using Bitcoin as a safe-haven investment similar to gold and silver. That will divert more bitcoins away from use as a reserve currency.
Those multiple uses, combined with Bitcoin emerging as the primary global reserve currency, is what will push it the rest of the way to $1 million.
The Best Pot Stocks: After nine months of exhaustive research, we've found the best, most lucrative, and fastest-growing legal pot stocks in America. They're all in our 89-page "bible of weed investing," The Roadmap to Marijuana Millions. And for a limited time, you can get all the details for free. Go here to find out how to reserve your copy today...
Follow me on Twitter @DavidGZeiler and Money Morning on Twitter @moneymorning, Facebook, or LinkedIn.
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.