With the advent of spot bitcoin exchange-traded funds, the quadrennial halving that just occurred — and a 160% increase in bitcoin's price in 2023 and more than 50% so far this year — everyone is paying new attention to cryptocurrencies.
JPMorgan Chase says blockchain technology will save banks $120 billion a year, and PwC predicts the sector will add nearly $2 trillion to global GDP by 2030.
All this is causing many financial advisors to ask: How high can the price of bitcoin go?
You've seen the predictions: AllianceBernstein says bitcoin's price will be $150,000 by next year; JP Morgan says it will reach that price by the end of the decade, and Cathie Wood predicts $1.5 million, while Michael Sayler says bitcoin will reach $5 million. No one who has studied bitcoin, to my knowledge, is predicting that its future price will be lower than today's.
The question of bitcoin's future price isn't academic; rather, it has a strong implication for portfolio modeling and asset allocation. Anyone with any degree of confidence that bitcoin might outperform other asset classes is compelled to add it their clients' diversified portfolios.
Thus, the question is merely this: Can you have such confidence?
I believe so. My analysis reveals that bitcoin will reach $420,000 by the end of the decade. I reach this figure based on simple arithmetic, which I explain below.
I got to thinking about this after reviewing responses to industry surveys, including those we conducted for Franklin Templeton. In each of these studies, more than 75% of financial advisors who work at independent RIAs said that, over the next few years, they plan to allocate an average of 2.5% of assets to bitcoin.
Considering that RIAs collectively manage $8 trillion, that translates into more than $150 billion of flows into crypto.
That got me thinking: If RIAs are planning to allocate to that extent, what might family offices, pension funds, endowments and other institutional investors allocate? How about wirehouse financial advisors? And retail investors themselves?
The Math Revealing Bitcoin's Future Price
I've seen dozens of formulas to predict bitcoin's future price — I've got an entire chapter on the topic in my book, "The Truth About Crypto" — but in the end, bitcoin's price is entirely about supply versus demand. Of all the assets in the world, bitcoin is unique in this regard: It is the only asset whose supply is fixed.
Companies can issue more shares or engage in stock buybacks; governments can print more money, or change zoning laws to alter the availability of real estate; and more gold is pulled from the ground each year, increasing its supply.
But there will only ever be 21 million bitcoins — never more, never less. This one fact allows us to engage in simple arithmetic that we can't do with any other asset.
Let's start by looking at the size of the world's financial assets.
