A year ago, it was as if the world had all but forgotten about Bitcoin. With the year-ago-to-date price of the virtual currency 77% lower than its May 27, 2017 closing price of $2086.71, it was only rival blockchain derivative Ethereum that was causing a stir. Ethereum, which debuted in August 2015, had notched up some 300% in gains since then and was being hailed as the next possible Bitcoin-style success story.
But value networks are by nature expansive, and not just that, they overlap constantly with one another in terms of functionality, usability, focus and performance. So it wasn’t long before Ethereum’s momentum generated waves all over the market. (For a special behind-the-scenes look at Ethereum, go here.)
In 2017 alone, Bitcoin has risen by 118%, with about half those returns having been produced in the past calendar month period, while Ethereum is up 1950% in the Year-To-Date period, having gone up another 170% in the previous month.
How $100,000 Per Bitcoin Makes Sense
The recent gains represent some hefty windfalls, but it appears that the party may only just be warming up again for digital assets. Media pundits, once rather camera shy about professing anything other than a vague passing curiosity for all digital assets, have begun to report that Bitcoin may indeed actually reach as high as $10,000 before long. Others still maintain that $25,000 a Bitcoin is not impossible over the next 10 years.
Those recent enthusiastic prophecies reflect the conclusion of a presentation I gave at the Meckler Media conference almost two years ago to the day, back when Bitcoin was in $300-territory (there is a YouTube video of that presentation here). That presentation showed how by performing a series of calculations designed to interpret Bitcoin’s purchasing, speculative and investable value, the average 25-year price of Bitcoin (that’s a 25-year average, remember) was probably around $10,000 a Bitcoin. It also was the first to correctly forecast the rise of smart contracts and crowdfunding-style impacts on Bitcoin’s price. (Before that, in November 2014, I gave a similar presentation in which I estimated by performing the same calculations that the value of Bitcoin by 2017 would be $2,469.55 – which turns out to have been dead on the money. You can download a copy of that presentation here. You can also read my more recent White Paper on Bipolar Market Economics published here at Coinspeaker to better understand the value of Bitcoin and digital currency assets over the long term.)
If the 25-year average is around $10,000, as increasingly looks to be the case, then it is likely that the real 25-year value of Bitcoin is in the region of $100,000 or so.
The reason for this is simply that if you take the price average of any asset, be it a house, a stock, or similar investment, it usually ends up higher than its 25-year average by about a factor of 10. This is after all the reason that long-term debt has such a beneficial impact on the economy vs. short term debt (which merely pump-primes the market with current liabilities that can rarely be amortised). While it is the momentum-bound gains that make for the sudden millionaire next door, it’s the the overall return premium of an asset divided by its long-term average rate of appreciation that makes everyone in society a winner.
Is It Worth Buying Bitcoin & Ethereum Now?
If the value of a Bitcoin on May 28, 2042 is $100,000 or so, then this means that right now, the virtual currency is a fantastic long-term purchase. Simply put, Bitcoin at this value represents non-cumulative returns on average of 196% a year for the next 25 years. It’s hard to rival that right now for potential price action, although it is worth noting that people achieved similar sorts of gains in the 1970-2000 period speculating on US and, in certain cases, on UK house prices.
However, the scenario wherein amazing long term returns are lying about ready for the picking can change in the blink of an eye, especially with respect to such a volatile asset class as virtual currencies. With Bitcoin trading at nearly $5000 in Korea this week, the forecast looks somewhat different: all of a sudden your annual return is more like 60% per annum. While that is still good, it may be slightly more risk than investors would consider reasonable to take on an asset class without any intrinsic value or long-term trading history.
For Ethereum, we can assume a valuation premium over the price of Bitcoin, accounting for returns over the equivalent 25-year period. Yes – I am saying that Ethereum is likely to be worth well over $100,000. Simply, the incredibly versatile functionality of the underlying technology is almost foundational in nature to many of the great ambitions of those currently building the architecture for the Internet of Things economy.
Naturally, this means that at half of Bitcoin’s current $30 billion market cap, Ethereum offers more or less double the long term attraction as does its predecessor.
There is potentially an overlooked caveat here, however; the core network underlying Ethereum is nowhere near as mature in terms of its overall development. Despite the fact that some of the smartest people you will meet in the world are engaged to various degrees in building it out, Ethereum is still as yet virtually untested if you take into account all the things that everyone intends to use it for. Thus, the relative price discount between ETH-BTC reflects the more junior state of the Ethereum Blockchain.
All considered, there is no question that virtual currency assets are a screaming long-term buy at current valuations. Just remember – that won’t always be the case. Certainly, if things continue as they have so far this year for another year or two, the long-term value prospects of Bitcoin, Ethereum and other virtual currency assets won’t look anything like as appealing.
For the time being however, it’s safe to hit the offer.