If you’ve followed the potential bitcoin price targets, you’ll know that many analysts expect Bitcoin to consume or completely eat portions of gold, money supply (M2), global debt denominated in fiat currency, stocks (equity), and real estate.
Once you grasp the implications that Bitcoin has no counterparty risk and dilution risk, you should recognize that Bitcoin will completely inhale all the wealth stored in gold, M2, and global debt, but what part of the wealth stored in equity (stocks) is reassigned to Bitcoin?
You need to think about a very complicated idea.
Two weeks ago, we posted our thoughts on how the valuation of a fictitious company, Wyoming Red Ribeyes, would change posthipperbitcoinization. Now, let’s go a little deeper and run a scenario analysis that shows how much the valuation of a typical S&P 500 company would change based on two relatively unknown predictive variables:
- The BTC inflation rate: How do we expect a relative CPI (commodity price) to evolve over time?
- BTC Equity Risk Premium: What expected percentage return (called BTC) will motivate investors to invest their BTC in traded equity?
BTC inflation rate
It is realistic to expect average consumer price index (CPI) inflation BTC to fall between 0% and 10% negative. The current system tries to produce approximately 2% of CPI inflation annually. Since the Bitcoin monetary standard operates under a fixed supply, bitcoin savers will be rewarded with all future productivity improvements through ever lower prices.
In general, it is reasonable to expect an approximate negative CPI of 5 percent, indicating that economic growth under a Bitcoin standard will be faster and more sustainable.
BTC equity risk premium
An equity risk premium is the excess return that is invested when investing in stocks to obtain a real risk-free return from simply HODLing bitcoin (or potentially gaining profitability on Lightning Network leasing channels).
This is hard to predict, as it will eventually be reduced to Bitcoin HODLers. They will be the ones to determine the wealth risk premiums they are willing to accept for their bitcoin.
Based on the current lending rates denominated in bitcoins (6% in BlockFi), we are likely to expect the equity risk premium to be higher than this, as this is the rate of a fairly safe debt, therefore, the “equity risk premium”. It may be realistic for an S&P 500 company to have a capital risk premium of between 0 and 30 percent.
While this depends on how the market weighs on specific business risks, it is generally reasonable to expect around 10 percent, indicating that investors will not be willing to part with HODLed BTC unless they expect a 10 percent return that accompanies the risk of investing in an equity.
What percentage of value store (SoV) is there in equities?
Below is a data table showing what percentage of wealth stored in traded equity valuations is simply looking for a generic SoV (i.e., bitcoin). Note that this data table uses the Wyoming Red Ribeyes Discounted Cash Flow (DCF) models as a typical fictitious S&P 500.
The two predictive variables, BTC inflation and the BTC equity risk premium, are the only two variables that change in DCF models.
If we look at our estimates of CPI negative inflation of 5% BTC and 10% of the risk premium on BTC shares, the estimated percentage of SoV currently stored in S&P 500 equities is 77%. This indicates that 77 percent of the real wealth stored in the S&P 500 could be reallocated to Bitcoin.
This estimate varies depending on the two predictive variables. For example, in the low range (0% equity risk premium and 0% inflation), Bitcoin will only capture 46% of the wealth stored in traded equity. However, in the high range (30% equity and negative 10% inflation risk premium), Bitcoin will capture 90% of the real wealth stored in the S&P 500.
Updated price targets
Starting with the basic assumption that Bitcoin eats the wealth stored in gold, M2 and global debt, we start at $ 17.1 million per BTC.
If we use the analysis to determine that Bitcoin will contribute 77 percent of the world’s shares, which will raise BTC’s total market cap to $ 427.9 trillion, indicating a price of $ 20.4 million. dollars per BTC. From here, we can conservatively add that Bitcoin will take the SoV out of real estate (50 percent of total real estate), which pushes us to reach a total BTC market cap of $ 568.4 trillion. dollars, indicating a price of $ 27 million per BTC.
Compared to our previous pricing target that incorporates both stock (50 percent) and real estate (50 percent), it only increased $ 1 million ($ 26 million to $ 27 million). Still, the $ 1 million BTC now looks pretty good.
Future research
We also want to delve deeper into real estate valuations, as we have simply used a 50 percent baseline to determine the wealth stored in real estate that will be absorbed by Bitcoin. This could be higher or lower. In addition, we could also try to fix in the future the productivity gains that Bitcoin will bring, as well as the high propensity to maintain an asset free of counterparty risk and dilution risk.
The number of world riches originated Visual capitalist and the “Mimesis Bitcoin Investment Research Report”.
This is a guest message from Mimesis Capital. The views expressed are wholly their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.