Why $1 Million Bitcoin Is Coming

If purchases by MicroStrategy and Tesla can send bitcoin rocketing, what happens when bigger players start entering the market?

AccessTimeIconMar 1, 2021 at 12:16 p.m. UTC
Updated Sep 14, 2021 at 12:18 p.m. UTC
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Bitcoin is officially mainstream. By the end of the last mega-bull market in 2017, most of the world had heard of bitcoin. But after Tesla recently purchased $1.5 billion for its corporate treasury and not for a speculative research and development sleeve, those still thinking bitcoin was a fad exposed themselves as woefully under-informed.

Tesla’s purchase underpins something even more dramatic than mainstreaming bitcoin as a legitimate cash-replacement for the world’s largest corporate, financial, and government institutions. These sudden influxes in demand, including a handful of recent bond-issuance-fueled purchases by MicroStrategy, are having an extreme impact on the bitcoin price. I believe we’ll see the price of bitcoin above $1 million sooner than most people can fathom.

Nik Bhatia is the author of "Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies" (2021). He is a CFA charter holder and Adjunct Professor of Finance and Business Economics at the University of Southern California Marshall School of Business.

I understand that $50,000 is already slightly discombobulating to the investment community at large, but that bitcoin price is only associated with $1 trillion of total market value in a world of hundreds of trillions of dollars in global wealth. If bitcoin’s market value reached the size of the U.S. Treasury market, for example, its price would reach $1.5 million.

It’s easy to predict $1 million bitcoin given a long enough time horizon, considering the pace of crypto-adoption across industries and the willingness of governments and central banks to provide unlimited amounts of fiscal and monetary stimulus. But when faced with the math of how much $3.5 billion in bitcoin demand (Tesla with $1.5 billion and MicroStrategy with $2 billion) caused its price to move, the approximations led me to some staggering numbers.

Keep in mind that this exercise is far from scientific. The price of bitcoin has basically tripled since MicroStrategy’s first publicly announced debt issuance in December. While the company has been purchasing bitcoin since August, it accelerated its buy-program then by raising capital via the corporate bond market aiming to bolster its bitcoin treasury holdings. MicroStrategy U.S. dollar bond issuance has become a regularity ever since. Quantifying exactly how much of the price explosion since December was caused directly by Michael Saylor or Elon Musk is impossible. But it’s fun to guess.

During the weeks that Saylor and Musk purchased at least $1 billion worth of bitcoin, its price increased by several thousand dollars. We know that the entire price move during those weeks cannot be solely attributed to these technology giants. After some rough calculations and a hefty discount, I believe that a $1 billion bitcoin purchase resulted in at least a $25 billion increase in its total market value, or about $1,300 per bitcoin. I’m saying the $3.5 billion total purchased by MicroStrategy and Tesla over the past three months directly increased the bitcoin price by $5,000 of the $30,000 total increase over that time. Maybe the actual contribution is more or less than that, but that’s the guess with which I’ll extrapolate.

A $3.5 billion purchase triggered an explosion of $30,000. Imagine what a $10 billion purchase from Apple would unleash.

Bitcoin’s powerful role in today’s society as a non-government, counterparty-free, first-layer money is apparent and markedly pronounced in 2021. In my new book "Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies," I make the argument that bitcoin will anchor the financial system in the future. But I failed to speculate on a bitcoin market value significantly higher than that of gold at $10 trillion, equating to a bitcoin price of $500,000. In retrospect, this was way too bearish given the information we gained from the market during February.

Let’s say that out of the $100 trillion worth of wealth in each of the following vehicles: real estate, public securities (stocks and bonds), and monetary instruments (government debt, bank deposits, money market funds), bitcoin manages to eke out a meagerly $1 trillion in new demand. Using a 25x multiplier given our estimations from MicroStrategy and Tesla, this would equate to a $25 trillion increase in market value, or $1.3 million per bitcoin.

I know this type of extrapolation is grandiose and extremely crude, but it doesn’t make the information any less dramatic.

Bitcoin’s price is a landmine. A $3.5 billion purchase triggered an explosion of $30,000. Imagine what a $10 billion purchase from Apple would unleash. Imagine the chain reaction from a $100 billion purchase by the Bank of Japan in a new quantitative easing program. Then finally imagine the world coming into bitcoin in a wave of FOMO the financial world has never seen before. A bitcoin total market value above $20 trillion (equating to a price above $1 million per bitcoin) no longer seems extreme. It seems mild.

Bitcoin’s price ascent will surprise most people who haven’t fully grasped the supply inelasticity of bitcoin. No increase in price can lead to a supply response, because bitcoin’s supply is pre-programmed and universally agreed upon. Governments, banks, and companies can issue as many crypto-competitors as they desire, but the bitcoin land grab is gaining the characteristics of the demand for prime real estate in the world’s most beautiful buildings and scenic coastlines, for the rarest art and jewels, and for precious metal itself. It’s demanded as an inflation hedge in Latin America, a path to economic empowerment in Africa, and as a peaceful protest of QE-infinity in the West. It has its own instant-settlement mechanism in Lightning Network. Most important, bitcoin is decentralized. There’s nobody to subpoena or central server to seize if governments tried to bring the network to a halt.

People often think they’re too late to buy bitcoin because it’s already at a price of $50,000. They just haven’t run the latest numbers.


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