Have you heard about former Coinbase CTO Balaji Srinivasan's ludicrous bet that Bitcoin will reach 1 million by June due to the banking crisis? That's almost as crazy as late John McAfee's (RIP) bet back in the days.
But let's get to the real question, how much "money" would it take for Bitcoin to reach such a valuation? Hmm...a pop quiz seems fun!
How much money inflow is needed for Bitcoin to reach a 1 million USD valuation?
a) 5 trillion USD b) 10 trillion USD c) 20 trillion USD d) nothing, hyperinflation will do the trick e) it's not possible, Bitcoin won't reach a million
Put your answer in the comments right now, then come back and read on ... The answer might surprise you.
Okay, ready? Let's dig in...
Many folks might think that for Bitcoin to reach a 1M USD valuation, it's as simple as checking the current market cap and subtracting that from the total number of Bitcoins issued multiplied by 1 million. That would mean roughly 19,325,000 x 1,000,000 - 550,000,000,000 = 18,775,000,000 or 18.75T USD.
But hold your horses! There are a couple of things to keep in mind. Approximately 80% of all issued bitcoins are being HODLed right now, meaning they are illiquid, the most significant number ever. This means that only 20% of 19,325,000 BTC or approximately 3,865,000 BTC is liquid and available for purchase. The actual number of BTC available on exchanges is even lower.
Then there's the multiplier effect, averaging around 2.6 in the last 5 years. This effect means that for every $1 invested in Bitcoin, the market cap increased on average by $2.6, a fascinating side-effect of the supply and demand mechanism.
Now let's calculate buying those liquid Bitcoins, keeping in mind the multiplier effect using the following formula. Inflow needed = liquid supply x 1,000,000 / 2.6 Calculated ► 3,865,000 x 1,000,000 / 2.6 = 1,486,538,461,538 USD or roughly 1.5 T.
Quite a difference compared to 18.75T, right?
This calculation, of course, is purely hypothetical and assumes that the current level of demand and supply remains constant. The actual price of bitcoin may vary due to a number of factors, such as changes in demand, supply, and market sentiment. Factors that could have a big impact:
Large market orders would increase the multiplication factor as it pumps up the price much faster
Certainly, some sell orders would be triggered at certain prices along the way, which increases the number of liquid BTC and thus the amount needed to pump to 1M
The calculation did not keep in mind the BTC that will be mined till June, so we need to add some additional BTC in our calculations.
Maybe most importantly, sell orders have the same multiplier effect, not to mention the panic selling that could occur if a large amount of BTC was sold at once.
Nevertheless, the calculation above proves that less money is needed than previously thought for BTC to reach a 1M valuation. While I don't believe that we'll see that happening by June and this bet is outrageously bold, it does show that there is a possibility that if the banking issues continue and people see Bitcoin as a safe haven, we could reach a 1M Bitcoin faster than expected, with less inflow than expected. The point is that the faster this would happen, the less inflow would be needed.
So there you have it! While Balaji Srinivasan's bet may seem outrageous and implausible, it's not as far-fetched as it might appear initially. With the right set of environmental circumstances, such as continued banking crises and increased adoption of Bitcoin as a safe haven asset, reaching a 1M valuation may be closer than we think. And now you know the (theoretical) calculation for how much money it would take to get there!
What do you think? Does his bet make sense? If not, what is your prediction? Leave your thoughts in the comments and if you liked what you read here, pressing the little rocket (it really helps!) would be appreciated!
Oh, and while you're here, why don't you check the idea below as well, an actual analysis of what I personally expect to happen till the next halving. (And no, it's not as crazy as this bet). Enjoy!
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The big question here of course is, even if it would happen and Bitcoin would become 1 Million USD by June, what would the actual value of USD be at that time?
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5 days to go :) I think it's fair to say that Coinbase CTO Balaji Srinivasan's prediction is not going to happen. But hey, it was good fun to try and figure out what would be needed to get BTC up to that price. :)
Your whole hypothesis begins with: "Approximately 80% of all issued bitcoins are being HODLed right now"...this means nothing at all. You are the one who contradicts this argument later in your post by saying that: "This calculation, of course, is purely hypothetical and assumes that the current level of demand and supply remains constant". You hypothesize that the demand and supply of an asset that loses 80% of its value in every cycle will remain constant! Do you seriously believe that there will be 80% hodlers after 100-150K? Then why BTC has its cycles? Why hodlers dump their coins after every halving? I will give you a hint mate...do you know what a ponzi scheme is?
Nico.Muselle
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@DrStein, If you don’t believe it or don’t get it, I don’t have the time to try to convince you, sorry. - Satoshi Nakamoto. I know what makes a Ponzi scheme, do you?
DrStein
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@Nico.Muselle, I also don't have the time to explain to you what makes a ponzi scheme especially if you don't get it. But I will paste Jackson Palmer's (creator of DOGE) opinion from an old tweet. "After years of studying it, I believe that cryptocurrency is an inherently right-wing, hyper-capitalistic technology built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight and artificially enforced scarcity.
Despite claims of “decentralization”, the cryptocurrency industry is controlled by a powerful cartel of wealthy figures who, with time, have evolved to incorporate many of the same institutions tied to the existing centralized financial system they supposedly set out to replace.
The cryptocurrency industry leverages a network of shady business connections, bought influencers and pay-for-play media outlets to perpetuate a cult-like “get rich quick” funnel designed to extract new money from the financially desperate and naive.
Financial exploitation undoubtedly existed before cryptocurrency, but cryptocurrency is almost purpose built to make the funnel of profiteering more efficient for those at the top and less safeguarded for the vulnerable.
Cryptocurrency is like taking the worst parts of today's capitalist system (eg. corruption, fraud, inequality) and using software to technically limit the use of interventions (eg. audits, regulation, taxation) which serve as protections or safety nets for the average person.
Lose your savings account password? Your fault. Fall victim to a scam? Your fault. Billionaires manipulating markets? They’re geniuses.
This is the type of dangerous “free for all” capitalism cryptocurrency was unfortunately architected to facilitate since its inception.
But these days even the most modest critique of cryptocurrency will draw smears from the powerful figures in control of the industry and the ire of retail investors who they’ve sold the false promise of one day being a fellow billionaire. Good-faith debate is near impossible.
For these reasons, I simply no longer go out of my way to engage in public discussion regarding cryptocurrency. It doesn't align with my politics or belief system, and I don't have the energy to try and discuss that with those unwilling to engage in a grounded conversation.
I applaud those with the energy to continue asking the hard questions and applying the lens of rigorous skepticism all technology should be subject to. New technology can make the world a better place, but not when decoupled from its inherent politics or societal consequences."
Nico.Muselle
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@DrStein, aaah, the good old conspiracy theories. Gotta love those :) But hey, I respect that you formed your own opinion about it. Kudos. Still suggest that you look into what is making up a Ponzi scheme.
DrStein
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@Nico.Muselle, what are the conspiracy theories that you mention? As far as I know, all the conspiracies come from the perma-bull side. The banks are going to collapse, the government wants to steal your money, the covid was a plan to control your life...here are some conspiracy theories for you: youtube.com/watch?v=BrXeUtf1abE Also I will paste here what a ponzi scheme is (wikipedia): "A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors." Is this what is happening in every end of the cycle? Who sold BTC over 60K and who was buying near ATH and waiting for 100K EOY? Also, have a look at this: youtube.com/watch?v=ORdWE_ffirg and good luck...
Nico.Muselle
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@DrStein, so the entire stock market and all investments are basically Ponzi schemes according to this definition. People cashing out at higher prices and selling to those who buy in happens in all these markets ... No? The Bitcoin market isn't any different as far as that is concerned, with the only addition that we have the halving cycles.
DrStein
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@Nico.Muselle, Not exactly, stocks sell you a part of a company and the stock market is regulated by the SEC. There are many scams going around the stock market too but at least the scammers have the fear of the SEC and when they get caught they go to jail. In crypto the scammers are anonymous, rich and beyond any law.