How Much is Bitcoin Worth?
Bitcoin price predictions are all over the place, from $85,000 to one-hundred thousand and as high as half a million! In this video, we’ll look at two ways to find how much Bitcoin is worth. I’ll show you Bitcoin analysis based on investors as well as users and then reveal an investing strategy anyone can use.
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Is It Too Late to Invest in Bitcoin?
Nation, Bitcoin is making millionaires. That’s a fact. The price has jumped 450% in the last year alone and up 15-fold from its 2018 low.
But it seems like the question is always, is it too late to invest? You missed out on the $500 Bitcoin in 2016 and didn’t buy in after the 2018 drop. You watch it pass ten and then 20 and thirty-thousand thinking, OK as soon as it comes back down, I’ll make my move.
But that never happens does it? It never comes down enough and the worry that it’s in some kind of bubble always keeps you from investing even as it keeps moving higher.
Bitcoin Value Analysis
So in this video, I want to do a complete bitcoin value analysis. We’ll work through the different ways to value the Bitcoin price, look at bitcoin price predictions and help you answer the question, How much is Bitcoin really worth. Then I’ll show you when and how to buy whether you’re a short-term or a long-term investor.
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I’ll be putting this video into our ARK Invest Big Ideas playlist. Ark published its 112-page report of the biggest trends its following, 15 themes changing our world. And I love this report, tons of research here…but not so much for suggestions on which stocks to buy.
So over the next few months, I’m going to dig deep into these 15 disruptive trends, show you the research, help you analyze it and then reveal the best investments for each trend.
How Much Bitcoin Is Worth
Before we get started though, I want to get your input on this, how much do you think Bitcoin is worth? So watch through the video, the different bitcoin price estimates we’ll look at and let me know in the comments below, what is your Bitcoin price prediction.
First let’s look at the Bitcoin price chart and I’ve circled some of the biggest events that play into the Ark Invest price analysis we’ll look at later. This shows last year’s low around $4,000 and closing just below twenty-thousand at year end. And it’s these institutional allocations that mean the most for Bitcoin price, investments like Square allocating a percent of its assets or Microstrategy buying $500 million Bitcoin from corporate cash.
It’s that industry and billion-dollar validation of Bitcoin that is taking it to new highs, making it a legitimate investment and cash reserve.
In fact, ARK estimates that if companies in the S&P 500 allocated just 1% of their cash reserves to Bitcoin, something we’ve already seen from Square, Salesforce.com and Tesla, that alone would add another $40,000 to the price of Bitcoin. And a 10% allocation would take it $400,000 higher!
The value of the US dollar against a basket of currencies lost 12% last year and inflation is expected over 2% this year. As more corporations hedge their dollar risk by putting cash reserves in Bitcoin, that takes our valuation between $90,000 to $450,000 per Bitcoin.
And that’s just corporate investment. Ark estimates that institutional investment from pension funds, sovereign wealth and private investors could add between $100,000 to half a million more to the price. Here we see just a 1% allocation from high net worth individuals, pension funds and other institutional investors adds $100,000 to the price.
So with the two estimates, just a 1% allocation in Bitcoin from corporations and institutional investors, the price goes to $190,000 and that’s on the lowest allocation estimate.
Now that’s probably a three to five-year estimate because I think it takes a few years for institutionals and companies to really get comfortable with putting investors and cash reserves into Bitcoin but that alone is almost a four-fold increase in the price, a 280% return and even if it takes five years…that’s a 31% annual return.
According to Metcalfe's Law
But that’s just one way to value Bitcoin and those of you in the Nation have seen me use Metcalfe’s Law in the past to find the price. Metcalfe’s is a mathematical theory that says the value of any network is related to the square of the number of connected users.
And the theory has been an amazing tool to value Bitcoin or really any platform that depends on a user network. This formula has been eerily accurate at predicting the value of social media stocks like Facebook, Twitter and Pinterest. Any company that has a network of users at the center of its business model, you can use this formula to value the investment.
Now Metcalfe’s formula for this is the number of users squared and we have estimates for Bitcoin unique addresses or users in the range of seven to nine hundred thousand for 2021. So you would take the square of each of those estimates to build a lower and an upper limit for the value of Bitcoin. That means between a market cap of $490 billion to $810 billion or a fair value between $27,000 to $42,000 per Bitcoin.
But think of this estimate, that $33,000 Bitcoin valuation, more of as a floor for the price. You see, that’s the current value of the network of users.
But, and this is something I realized recently while thinking about it, that current value…that’s not how you find the fair value of investments, is it? The fair value of a stock is the present value of its future cash flows, or how much those cash flows will be worth over the next three or five or twenty years.
So if we’re just looking at the value of Bitcoin based on its current network of users, we’re ignoring the potential future value as more individuals, more institutionals and more corporations put their money in the cryptocurrency.
Value of Bitcoin
If we’re looking further out on that Bitcoin valuation, which is the way we should be valuing it as an investment, we have to estimate how many unique users it can put on over the next three to five years. Bitcoin has added about 300,000 users in the last year and four-hundred over the last two. So making a few estimates here, we can come to a price prediction over the next three years. On a conservative estimate of just 100,000 new users a year, or 1.1 million total users, we get to a $1.2 trillion market cap or just under $63,000 per Bitcoin. On the current rate of growth, we get to 1.35 million users for $94,000 per Bitcoin and on a little faster growth, the price of Bitcoin more than doubles to $117,000 over the next three years.
So if we’re using these two ways to value Bitcoin together, the institutional investments method used by Ark Invest and this network valuation with Metcalfe’s law, we get a value somewhere between $94,000 to $190,000 over the next few years and potentially higher depending on how quickly investors allocate funds to the crypto.
Other Valuation Methods for Bitcoin
There are other valuation methods for Bitcoin. Mike Novogratz, founder of Galaxy Digital and long-time Bitcoin bull, told Bloomberg in an interview after Tesla bought $1.5 billion that he thought the crypto could reach $100,000 by the end of the year. …so he’s talking about that investor and institutional valuation like ARK
Ray Dalio, founder of hedge fund Bridgewater Associates uses a gold replacement valuation and estimates a price of $85,000 per Bitcoin. And that’s actually low on the gold thesis, Scott Minerd of Guggenheim Partners, estimates Bitcoin could be worth as much as $600,000 if it were to compete with gold as an asset.
Now just like stocks, there can be a big difference in the price of Bitcoin on a short-term versus a long-term basis. Over the longer-term, we see all the factors we’ve talked about come into play. That network affect of users, the institutional investors and the idea that cryptocurrencies could be a replacement for gold. These will all work together to drive Bitcoin up to between $95 to $150,000 or more over the next three years.
But in the shorter-term, over the next few months, just like stocks can fall below their fair value in a crash, investor sentiment for Bitcoin could weaken. Here I think you use the current Metcalfe’s value as a floor on the price, that $34,000 valuation as major support.
So using this Bitcoin valuation, I invested half of what I wanted to invest back in January and will probably add more if we see any kind of weakness to $50,000 or $40,000 per BTC. On that longer-term forecast, I think you can even come in here as a new investor and still do extremely well over the next three to five years.
Of course, that’s not even accounting for the interest you can earn on your Bitcoin so holding it on a platform like BlockFi instead of another that doesn’t pay interest. There’s no hidden fees and no minimum balance. I highly recommend you use BlockFi so make sure you check that out and earn up to 8.6% annual yield on your cryptocurrency investment.