According to Matt Hougan, the CIO at Bitwise Asset Management, Bitcoin could potentially reach a valuation of $1 million if it manages to secure about 17% of the projected $121 trillion global store-of-value market.

In a recent memorandum, Hougan outlined how growth in the long-term market could enable much higher valuations for this digital asset.

The Math Behind This Projection

Hougan suggests that the initial impression of a $1 million valuation appears far-fetched since it would require Bitcoin to increase nearly 14 times its current value—a target he previously dismissed back in 2018 when Bitcoin was trading around $4,000. However, he further explains that the common error in assessing Bitcoin’s long-term potential lies in considering the store-of-value market as stagnant rather than increasing.

He describes Bitcoin as a developing digital asset competing with gold, allowing investors to retain value outside traditional currencies and banking, all while noting the higher volatility and less established nature of Bitcoin compared to gold.

Estimating Bitcoin’s potential involves assessing the size of the global store-of-value market, the portion Bitcoin could dominate, and splitting that estimate by Bitcoin’s limited supply of 21 million units. Currently, the store-of-value market sits just short of $38 trillion, with roughly $36 trillion attributed to gold and around $1.4 trillion in Bitcoin itself, meaning Bitcoin constitutes just under 4% of this market.

Thus, while attaining a $1 million price for Bitcoin seems daunting, Hougan contends it’s feasible if the market continues to expand. He underscores the metal’s market capitalization growth over the past twenty years to illustrate his point.

Given this historical context, and assuming the wider store-of-value market keeps expanding, it could approach $121 trillion within the next decade. Under such circumstances, Bitcoin would need a mere 17% market capture to reach its $1 million target. Although the current share is around 4%, Hougan suggests that enhanced adoption might make this growth attainable.

Key Risks to Consider

While the outlook may seem bright, Hougan cautions that several risks could halt this vision. He mentions that the store-of-value market’s growth may not replicate past trends which have included significant events like the global financial crisis, prolonged periods of low interest rates, and the widespread use of quantitative easing. This might also lead to potential declines in gold prices or hinder Bitcoin’s capacity to seize more market share.

However, Hougan also acknowledged that current estimates might underestimate Bitcoin’s potential, particularly if concerns regarding rising government debt amplify and more investors look toward alternative value storage options. In his base-case scenario, he expects the store-of-value market to keep growing while Bitcoin slowly increases its market presence, potentially sparking prices far above current levels.