Bitcoin worth $100m by 2035?

Bitcoin worth $100m by 2035? Fidelity, one of the world’s largest asset managers, with Trillions of Dollars under management, has come out several times in the press and stated that one Bitcoin could be worth $100 Million or more by 2035 (Source). At the time of this video, this is 13 years away.

In this blog post and video, we are going to dissect the Business Case of Bitcoin and try and understand how such a large investment firm came up with what seems like a “crazy” price prediction.

To understand how Fidelity calculated that estimate, one must first understand how the fundamentals of Bitcoin governance work and more specifically its supply.

Bitcoin Supply

Bitcoin is a digital currency based on a computer code and a peer-to-peer network of participating computers (often called miners or nodes). Nodes validate transactions digitally and securely on the Blockchain. This eliminates the need for a third party of trust like a bank. People commonly know Bitcoin as a cryptocurrency because it uses complex cryptography or encryption to secure transactions on its network.

In this article, we are not going further into the technicalities of how the mining process works. But if you wish to learn more about the inner workings of the Bitcoin blockchain and the mining process, please check our video on “How Bitcoin Works”.

It is important to remember, that the Bitcoin blockchain or peer-to-peer network is not dependent on central entities like a banks or governments. People refer to Bitcoin as “decentralized” because its core code and governing principles are decentralized. Additionally, the miners record all transactions on the Bitcoin public ledger, and computers scattered across the world replicate these transactions in real-time.The name Blockchain comes from the fact that when miners add new transaction data to the Bitcoin ledger, we say we add a new transaction block in chronological order therefore forming a “chain of blocks”.

The Bitcoin Blockchain

The Blockchain is immutable because if one miner tries to tamper with the data, all the other nodes run by miners around the world would see it and exclude the fraudulent block and miner from the network. Similarly, if a miner goes offline, it does not matter, because all the other nodes run by miners have the latest version of the ledger or core code, and they can continue to operate. When a miner comes back online their node will simply download the latest verified version of the ledger and rejoin the network.

The Bitcoin blockchain and core code have a self-regulating mechanism that adjusts the mining complexity (and energy requirement), based on the number of participating miners. If there are a lot of miners, the complexity is high, and the power requirements are high, flushing out the most inefficient miners. If however, there are not enough miners to secure the network, the complexity drops and lowers the barriers to entry.

This self-regulating mechanism plays an indirect role in the business case by giving investors in Bitcoin the confidence that the network is robust and secured. Of note however, is the fact that this self-regulating mechanism also causes the Bitcoin blockchain and its miners to consume a large amount of energy. We will come back on that point later in the analysis.

Bitcoin Immutability

Another fundamental principle of the Bitcoin blockchain which is also hardcoded in its core-code, is its total volume and issuance.  Satoshi Nakamoto, the creator of the Bitcoin Blockchain, has set a parameter at its core that only 21 million bitcoins will ever exist. If anyone, including a miner, tries to add more Bitcoin to the core code, other mining computers will reject the change because it won’t match the code on those computers. The reason for this is that the core code holding these rules is replicated among all the miners, making it impossible to modify. Similarly, it would be impossible to tamper with transaction history.

An attempted act like this is technically called a 51% attack. To change the volume of bitcoin, it would require 51% of the miners to agree to the change. However, this is where the economic fundamental of the business case comes into play. The fixed total volume of bitcoin is one of the main reasons why investors see value in it. If miners were to succeed in changing that volume, investors would quickly sell their holdings, and the price would collapse.

Bitcoin issuance

Before diving deeper into that, let’s first understand the issuance mechanism of new Bitcoins, as it also plays an important role in the Business Case. Investors like predictability when it comes to their investments and there is not much more predicable than the fixed issuance of Bitcoin. The issuance of new Bitcoins is also set by its core code and therefore is also decentralized and immutable.

When participating in the Bitcoin network, miners are compensated for providing their hardware, electricity, and internet bandwidth. Every time they validate a new transaction and add it to the Bitcoin ledger, which happens roughly every 10 minutes, they receive two types of payments: a transaction fee and a blockchain fee. The transaction fee is paid by the person sending Bitcoin to another person, while the blockchain fee is a preset amount of newly created Bitcoins paid by the core code within the total quantity of 21 million Bitcoins.

Bitcoin Sustainability

One quick side note on the electricity used by the miners to process Bitcoin transactions, as it is often the subject of many debates on Bitcoin and its sustainability. Let’s put this in perspective to understand it better: In 2021 YouTube and all its servers consumed annually 600 TW/h and with minimal efforts made to make that consumption greener. The entire Bitcoin network with all its mining computers consumes 120 TW/h annualized, so exactly 5 times less than YouTube, and the Bitcoin community is investing huge amount of money to make future mining as green as possible with some sources claiming that between 25 to 60% of its energy consumption is already green.

When the Bitcoin blockchain launched in 2009, miners received a reward of 50 Bitcoins per block of transactions they validated. However, the core code also includes a mechanism that reduces the block reward by 50% every 210,000 blocks, which is known as the halving. The first halving occurred in November 2012, reducing the block reward to 25 Bitcoins. Since then, two more halvings have taken place roughly every four years, with one occurring in July 2016 and the most recent one in May 2020, reducing the block reward to 12.5 and 6.25 Bitcoins, respectively.

The halving events cause a supply shock that has historically led to a rally in the price of Bitcoin. Miners are paid for validating transactions and adding them to the Bitcoin ledger, typically receiving two payments: a transaction fee paid by the person sending the Bitcoin, and a Blockchain fee paid by the core code in the form of newly created Bitcoins, within the preset quantity of 21 million.

The Bitcoin Satoshi

This is a good opportunity to point out that a Bitcoin can be divided by one hundred million and that its smallest denomination is called a Satoshi or Sats for short. Bitcoin investors do not need to buy a full Bitcoin and can buy Bitcoin fractions as small as Sats. This obviously opens up Bitcoin purchases to a much wider investment community making Crypto a much more affordable and accessible investment asset.

The Bitcoin public ledger allows you to check the number of Bitcoins minted at any time. Currently, the network has minted over 19 million Bitcoins, leaving about 2 million more to create. Experts predict that Bitcoin will mint the last Bitcoin in 2140, thanks to its issuance mechanism, which uses the halving principle, as explained earlier. It is important to understand for our Bitcoin Business Case that the issuance of Bitcoins is highly predictable, and the number of new coins that can be created is decreasing as it approaches the finite limit of 21 million.

Hard Money

People often refer to Bitcoin as “hard money” because of its predictable issuance and fixed volume, which sets it apart from fiat currencies such as the USD or Euro that have an unlimited supply. Currently, the Bitcoin network has created 19 million coins, but the actual available amount is likely closer to 15 million. This is because an analysis of Bitcoin’s public ledger indicates that approximately 20% of the coins have probably been lost permanently.

Bitcoins can be lost when owners lose their access to them. You might have heard stories of people trying to retrieve old hard drives after the price of Bitcoin reached new all-time highs. So how does this happen? Well, there are different options to store or safekeep Bitcoins. They can be stored on exchanges, just like stocks but unlike stocks Bitcoin also allows for self-custody.

Bitcoin Custody

Users can move their Bitcoin out of exchanges and store them in digital wallets that utilize the security of a private key, which is an alphanumerical sequence acting as a password. Feel free to check the content of Cryptocollege.cc for more detailed explanations on how all this works. What is important to understand here, is that if someone loses their private key to their personal wallet, they effectively lose their Bitcoins. Those Bitcoins still exists but no one can access them. To use a simple analogy this would be like launching gold coins into outer space.  Does that gold still exist? Sure! Can it be accessed? Very unlikely.

There are plenty of stories of people losing access to their Bitcoins simply by not being careful or in more dramatic circumstances by dying and not having prepared a way for anyone to retrieve the private keys as part of a well-planned inheritance plan. This is not to be confused with Bitcoin being stolen by thieves or scammers who get access to your private keys. Those remain in circulation as opposed to lost Bitcoins. A key point to consider here is that the combined effect of lost Bitcoins alone on our Business Case is that Bitcoin is even more scarce than people think.

Key points

Let’s recap the most important points covered so far from the supply side before going into the demand and pricing of our bitcoin business case:

1. The total volume of Bitcoin is made immutable by the blockchain technology, which is determined by the core code.
2. The total number of bitcoins that will ever be created is limited to 21 million, and the creation of the last bitcoin is predicted to take place in 2140.
3. Bitcoin’s total supply is set at 21 million, and about 19 million bitcoins have been generated so far. However, it is estimated that approximately 4 million of these bitcoins are currently inaccessible, which means that only around 15 million bitcoins are in circulation. This has implications for the demand for Bitcoin.

Bitcoin Demand

Now that you have a better understanding of the supply side of Bitcoin, let’s now look at the demand side: there will soon be 8 billion people living on this planet and there are 15 million Bitcoin in circulation… this means that only 0.2% of the population could own one full Bitcoin.  Of course, many more could own fractions of Bitcoins, but this already puts things into perspective. At its current price of roughly $20,000, many people already cannot afford to own a full Bitcoin!

But let’s imagine that all USD millionaires in the world, for whom $20,000 is not such a proportionately large amount of money to invest, decide to buy just one Bitcoin each. Well, there is an estimated 60 million USD millionaires in the world.  This means that only 25% of them would be able to own one Bitcoin. Imagine what would happen to the price of Bitcoin if 30% of the global millionaires decided they want to own 1 Bitcoin. And this does not even consider the wealthy individuals and institutions that could target 10’s, 100’s or even 1000’s of Bitcoins as part of an investment portfolio. I think that this makes a very clear image of where we could easily see demand a lot greater than supply.

Gen Z Millenials

Let’s forget about the millionaires for now, because why would they need Bitcoin, they are already millionaires after all. So, let’s focus on people who are buying Bitcoin today and this is mostly millennials with estimate showing that more than 90% of Crypto buyers are Gen Z or Millennials. Put another way, some analysis shows that up to 40% of millennials now own Cryptos.

So why is this so important for the future price of Bitcoin? If so many of them already have Cryptos it can no longer grow substantially. Well, this is important because of a phenomenon called “the greatest generational wealth transfer of human’s history”.

Experts estimate that between $30 and $70 trillion of wealth will pass down from Baby Boomers to Millennials and Gen Z in the next two decades, just in the USA. With 40% of them already invested in Bitcoin and other cryptocurrencies, it’s likely that a portion of these inheritances will go towards investing in this asset class.

To put things in perspective here, at the end of 2022 the total market capitalization of Bitcoin is 400 billion USD, and the total asset class is around 1 trillion. Therefore, even if millennials from the US invest a small percentage of their future inheritance in Bitcoin, it could have a significant impact on price.  Now expand that though to all millennials and Gen Z around the world where in poorer countries the percentage of them invested in cryptos is higher than 40%.

Pressure on the younger generation

The younger generation is turning to crypto as a means of financial security. Government inflation, caused by the printing of more money, has led to a decline in the value of traditional currency over the years. As a result, many young people can no longer afford to purchase homes, and are searching for alternative means of wealth accumulation. Additionally, this trend has led to a debt cycle for many individuals, trapping them in a cycle of work with little financial reward. Crypto provides an opportunity for them to break free from this cycle and secure their financial future..

It’s important to note that as more millennials around the world become crypto enthusiasts, they will gain more political influence. This trend is already becoming visible globally, as young, pro-crypto politicians are becoming more vocal.

Let’s have a look now at a chart that shows the number of unique wallet addresses and their Bitcoin holding over the years.

 

The blue line shows the price of Bitcoin, and the red lines shows the number of unique address (or crypto accounts if you prefer) holding some Bitcoins. The trend is clear and does not seem to slow down even when the price pulls back. The Bitcoin Public ledger provides highly reliable data that cannot be manipulated, ensuring the authenticity and accuracy of the data.

Institutional Investors

All the demand for Bitcoin we have talked about so far really is about retail investors, but what about institutional investors?  Well, with time, more and more of them will want a piece of the pie.  Some studies show that they might already account for more than 10% of the existing volume with two companies famously leading the way with Greyscale’s fund that holds 640,000 Bitcoins and MicroStrategy that holds 130,000 Bitcoins.  This means these two companies on their own roughly 5% of the total supply of 15 million in circulation. Think about that for a moment, these two institutional investors’ holdings equates to 770,000 single Bitcoin owners, or to put another way, our millionaires club access just reduced even further.

But what is the reason for institutional interest in Bitcoin? Simply put because Bitcoin is becoming an investment edge they can no longer afford to miss. The average performance of Bitcoin since 2009 has outpaced all other asset classes, (more on that in the next part of our business case). What is important to understand here, is that a well-balanced institutional portfolio always has a small percentage of asset with high-risk high-rewards or even assets that are uncorrelated from traditional financial products. More and more Bitcoin and other cryptocurrencies are playing this role for institutions.

El Salvador

Lately even countries and governments are also jumping into investing in Bitcoin with El Salvador famously making Bitcoin a legal tender on par with the US dollar.

Let’s do another quick summary on what we have learned from the demand side:

1. Over 40% of Millennials and Gen Z have invested in cryptocurrencies.
2. Millennials and Gen Z are about to inherit Trillions of dollars from Boomers over the next two to three decades. They will most likely put a small percentage of that in cryptos
3. OnChain analyses shows steady increase in self-custody of Bitcoin even through bear markets
4. Institutional investors are also moving in and could already hold up to 10% of the Bitcoin volume investing into crypto to edge the portfolios

Bitcoin price

So, what does all this mean for Bitcoin price?  Well , now that we have established that demand for Bitcoin grows steadily and could continue to do so for the foreseeable future with Millennials and Gen Z getting wealthier and continuing to invest a part of their wealth in Bitcoin and to factor this against a fixed and limited volume, let’s take a look at some basic projection calculations.

If we completely eliminate the 2010 Bitcoin growth of 9900% to try and have a more conservative approach and start with the price of Bitcoin on the first of Jan 2011 at $0.3 and then take its closing price at the end of 2021 at $47,753 and calculate how much the price grew on average per year, we find a compounded annual growth of 197%. Now, just for test purposes, let’s extrapolate this average annual return all the way to the 2035 to see how this compares to Fidelity’s valuation of $100 million per Bitcoin. If we do that, we find a price of more than $60 billion per Bitcoin!

$100M by 2035?

This is an interesting data point, but why does Fidelity’s projection then appear to be so much smaller at $100 million by 2035? Because we must factor in that with adoption and more and more people holding the asset, the price volatility of Bitcoin diminishes and so does the differences between market cycle bottoms and new all-time highs.

A good testimony of that is that in 2022 Bitcoin has become less volatile than the SP 500 for the first time! So, if we consider as a starting point the value of Bitcoin on Jan 1^st 2022 of $47,735 and we then reduce the compounded annual rate by half to 80% we get $100 million per Bitcoin in 2035. If we bring the current compounded average annual growth from 171% all the way down to 26% a Bitcoin would be worth $1 million in 2035.

Inflation

Now let’s get back to our global millionaires for a moment and factor in inflation in our business case.  For simplicity let’s take a millionaire that on Jan 1^st, 2022, has one million USD. How much buying power will he or she still have with that million come 2035? First, let’s verify that the inflation rate of approximately 3% compounded annually would provide our millionaire with a buying power of $673,000 by 2035.

But what if major economies struggle to bring back inflation down to 3% because of the massive debt to GDP ratio they must service nowadays and lets says that between today, where it is above 8%, and 2035 inflation averages out at 5% annually?  Well, our millionaire would then have a buying power of only half a million USD… So, what could he or she do to protect himself against inflation?

Compound growth

They could spend on the first of Jan 2022 $24,000 on half a Bitcoin and bet on a conservative growth of its value of 26% compounded annually and offset a 5% inflation. Can we guarantee that Bitcoin will experience a compounded annual growth rate of 26% until 2035?No, it is not a certainty, but it is a conservative estimate based on current adoption and annual growth of 197%. What is certain is that by 2035, our millionaire buying power will at best be $673,000, or at worst under half a million.

So now I ask you this: if you were that millionaire on Jan 1^st, 2022, would you spent $24,000 to have a high probability to offset inflation completely or at least significantly? Well more and more of them are starting to think that way and reducing everyone else’s ability to buy a full Bitcoin.

You might think I’m not a millionaire I don’t care, but what is true for a million dollars is also true for $100,000, $10,000 or $1,000 and you can buy a 100 million fraction of a Bitcoin.

Threats

Before concluding, let’s quickly have a look at what could put an end to Bitcoin’s run. There are potentially three major threats to Bitcoin. The first is cracking Bitcoin encryption with Quantum computing. Simply put, Quantum computers are super powerful computers which are based on the principle of quantum theory. Although quantum computing theoretically has the potential to impact our lives, it is unlikely to do so in the near future, and we don’t anticipate its effects for another decade or more.

The second threat is a 51% attack that we discussed in the first part of our business case, where there is a malicious attempt to be in control of more than 50% of the Bitcoin Blockchain processing power to be able to alter the core code. Although again theoretically possible, this is also unlikely because the cost to gather so much computational power would be Billions of dollars for no reward as it would collapse the price the second the network identifies a malicious alteration.

The third and most likely threat to Bitcoin is a legal ban by governments. Governments can make ownership or exchanging of Bitcoin illegal just like the USA made buying of gold illegal in the 30’s. Governments can make Bitcoin illegal due to its self-custody principles, but they cannot stop or control it. This would simply make conversion back to fiat currencies more difficult. China serves as a prime example of this trend. Despite making Bitcoin illegal, blockchain data shows that around 10% of the Bitcoin exchanges are still active in China, more than a year after the ban. Bans may come and go in different countries over time, but as millennials gain more political influence and take on key political roles, we can expect increasing acceptance of Bitcoin and other cryptocurrencies.

Conclusion

In conclusion, when considering the limited and controlled supply of Bitcoin and the growing demand driven by increasing understanding of its potential as a speculative investment or hedge against inflation, it becomes clearer why Fidelity believes the price of one Bitcoin could reach $100 million by 2035.

Fidelity made these predictions back in 2021, well before the recent surge in inflation, which essentially confirms the accuracy of their statement. Inflation is here to stay as the American economy now requires three units of additional debt to increase its GDP by one unit. This has resulted in the US Fed printing much more than 50% of the total volume of US Dollar ever created during the last two years…

As a result, it now becomes more and more risky to not have a small portion of one’s portfolio hedged with Bitcoin than the inherent risk of buying the asset. This is particularly true for people in stable economies. But it becomes a precious solution for people with collapsing currencies such as Lebanon or Argentina.

 

Important Disclaimer:

The content of this article or any content from CryptoCollege.cc is for educational purposes only.  It is not investment advice. Therefore, investors must do their due diligence before making any type of investment decision. Read more here.

CC Learn and Earn Bitcoin Program:

We give part of our YouTube advertising revenues in Bitcoin (Sats) to our community. To participate, subscribe to our YouTube Channel and complete the educational challenges we launch on our various Social Media @CryptoCollegeCC . Read more about the CryptoCollege.cc Learn and Earn Program here.

Support and Donations:

If you find our content useful and want to support us. You can either follow us on Social Medias @CryptoCollegeCC or donate to the below addresses. Thank you for your support!

Bitcoin: bc1q85ngl882te4rqery2028auha8dsxlsu89aqjxqle0n6zkuqg5a6q3m38t5
Ethereum or ERC20 Token: 0xc873fBcB5DB38B87CaC2e02C28A5C504eC673d62