Bitcoin Price Modelling
Given the recent, well-publicised, seemingly high Bitcoin price predictions by CathieDWood and Balaji Srinivasan, i wanted to ascertain how realistic these may be based on some modeling.
Halving cycles
When using Days from the Bitcoin Halving (where the inflation rate of new Bitcoins is halves); we can see that Bitcoin peaks around 368-550 days post halving and then bottoms 779-914 days post cycle.
Modelling
Using the Bitcoin high and low prices we can derive the well-known Bitcoin “price curve”, with upper and lower values, both of which have a power line of best fit with an R2 or >99% or in other words, the data fit the regression model and will be used here as a basis to predict future cycle highs and lows.
Assumption
Bitcoin price behaves in a cyclical nature, largely defined in terms of time by the Bitcoin halving, which has a following period of price exuberance and subsequent decline, which happens on a timely basis, largely dictated by the halving itself.
Model
By combining expected halving dates and days to cycle tops and cycle bottoms alongside extrapolated regression of price data, it is possible to use this model in predicting where Bitcoin price may reside at the peak and trough of future cycles.
It looks like this:
Model Outcomes
Assuming Bitcoin Peaks and troughs in a similar fashion to before; here are the key outcomes for the next two cycles based on this model, which shows >$200k 2025, and $500k in 2029.
So how reasonable are these prices?
This will be obviously a well-contested area of debate, but let’s look at recent developments; as we know, Bitcoin, was developed after ’08 as an answer to the banking crisis and undefined, centrally dictated monetary policy. While recently silvergate and SVB collapsed, Bitcoin saw price appreciation as a flight to safety.
Why is this important? Wealth is mid-transfer from the Boomer generation to the Millennials, who will look to protect their assets like all other generations. They are likely to do this via means they are familiar with – i.e. digital means, rather than physical i.e. Bitcoin not Gold.
Tom lee explains this brilliantly. https://www.youtube.com/watch?v=GGberGnxiJk
Gold
The Gold market cap is effectively unknown as the total quantity of Gold is unknown, but it is estimated to be around $13 Trillion. For reference, to capture this entire market, Bitcoin would reside around $670k.
If we assume Millennials adopted a digital store of value and Gold was dropped entirely, this would roughly be the value of a Bitcoin.
So we know that Bitcoin has room to grow – will it replace gold entirely? – unlikely as gold has commercial properties which Bitcoin does not, however, Bitcoin also has properties Gold does not – e.g. its easily transferable and difficult to confiscate.
Gold as a flight to safety is a bit of an enigma – it has not meaningfully broken higher since 2011, yet the money supply has increased by 132% over the same period. Meaning there is a detachment between the inflation of money and the value of the risk assets backing up that money.
Gold vs M2 Money Supply
Therefore, if we assume that the risk off assets are under-priced relative to historic, it’s reasonable to assume that a correction may occur, particularly in times of risk, which is arguably why gold looks set to break out higher towards $3k:
Gold
Looking Ahead
Over time, I suspect that two things will happen; a repricing of risk (and therefore the assets which represent risk-off) and a shift from physical to digital, in the same way that we have seen with everything else.
Put the two together and it would suggest increasing the market share of Bitcoin in an increasing value pool.
So let’s address the Million Dollar question
According to this Model, Bitcoin would Hit $1m no sooner than 2032. So Cathy is probably making similar assumptions as this model. They are not unreasonable here and it is effectively within the realms of possibility.
Personal thoughts – Bitcoin is likely to see a tapering effect with its price over time, which is only naturally to be expected. However, there is an aggressive S-curve in effect and I do not think that we have seen a seismic shift toward digitally stored value.. yet. All of the evidence seems to suggest that this is on course.
My gut feel is that the bottom of the curve is more reliable and a better assessment of value and would be a better place for most long-view investors to be placing their focus – the rising tide.
I recently stated $180k is the target next cycle; I will stick to that for now.
I hope you found this interesting and please remember:
– This is a model, not financial advice – This does not guarantee anything in the future – Do your own research – Stuff goes up and down this is ultimately a guess and not gospel.
filb.
Disclaimer: Nothing within this article should be misconstrued as financial advice. The financial techniques described herein are for educational purposes only. Any financial positions you take on the market are at your own risk and own reward. If you need financial advice or further advice in general, it is recommended that you identify a relevantly qualified individual in your Jurisdiction who can advise you accordingly.
