If you have tracked potential bitcoin price targets, you know that many analysts expect bitcoin to consume or completely eat portions of gold, money supply (M2), global debt called fiat, stocks (shares) and real estate.
Once you understand the implications that bitcoin has no counterparty risk and no dilution risk, you should recognize that Bitcoin will fully inhale all the wealth stored in gold, M2, and global debt, but what portion of the wealth is stored in stocks ( shares) will be reallocated to bitcoin?
It is a very complicated idea to meditate.
Two weeks ago, we published our thoughts on how the valuation of a fictitious company, Wyoming Red Ribeyes, would change post-hyperbitcoinization. Now, we’ll go ahead and do 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:
- BTC inflation rate: How do we expect a relative CPI (commodity price) to evolve over time?
- BTC risk premium: What expected percentage return (called BTC) will motivate investors to invest their BTC in publicly traded shares?
BTC inflation rate
It is realistic to expect the average inflation of the BTC consumer price index (CPI) to fall somewhere between 0% and 10% negative. The current system tries to produce about 2% CPI inflation annually. Because the Bitcoin monetary standard operates below a fixed supply, bitcoin savers will be rewarded with all future productivity improvements at lower and lower prices.
In general, it is reasonable to expect a CPI of about 5% negative, which indicates that economic growth under a Bitcoin standard will be faster and more sustainable.
BTC Equity risk premium
A risk premium for equity is the excessive return that investing in stocks is expected to provide, above a real risk-free return, simply HODLing bitcoin (or potential profit gain on Lightning Network leasing channels).
This is difficult to predict, as it will eventually reach Bitcoin HODLers. They will be the ones to determine the risk capital premiums they are willing to accept for their bitcoin.
Based on current borrowing rates expressed in bitcoin (6% on BlockFi), we would probably expect the equity risk premium to be higher than this, as this is the rate for fairly secure debt, so “risk premium for equity ”. It may be realistic for an S&P 500 company to have a capital risk premium between 0 and 30 percent.
While this depends on how the market weighs the specific business risks, it is generally reasonable to expect around 10%, indicating that investors will not be willing to part with HODLed BTC unless they are expected to a return of 10% to accompany the investment risk. in a publicly traded capital.
What percentage of value storage (SoV) is in shares?
Below is a data table that shows what percentage of the wealth stored in publicly traded stock valuations is simply looking for a generic SoV (e.g., bitcoin). Note that this data table uses Wyoming Red Ribeyes’ updated cash flow (DCF) models as a typical fictitious S&P 500 company.
The two predictive variables, BTC inflation and the BTC capital risk premium, are the only two variables that change in DCF models.
Looking at our estimates of 5 percent negative CPI inflation and a 10 percent BTC risk premium, the estimated percentage of SoV currently stored in S&P 500 public shares is 77 percent. This indicates that 77 percent of the real wealth stored in the S&P 500 could be allocated back to bitcoin.
This estimate varies depending on the two predictive variables. For example, at a lower level (0% for capital risk premium and 0% for inflation), bitcoin will capture only 46% of the wealth stored in publicly traded shares. However, at a high level (30 percent stock risk and 10 percent negative inflation), Bitcoin will capture 90 percent 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 our analysis to establish that bitcoin will absorb 77% of global shares, which pushes the total ceiling of the BTC market to 427.9 trillion dollars, indicating a price of 20.4 million dollars per BTC. From there, we can conservatively add that Bitcoin will take SoV out of real estate (50% of total real estate), which pushes us to a total BTC market ceiling of $ 568.4 trillion, indicating a price of 27 million dollars on BTC.
Compared to our previous price target that incorporates both shares (50 percent) and real estate (50 percent), it increased by only $ 1 million (from $ 26 million to $ 27 million). However, the $ 1 million BTC sounds pretty good right now.
Future research
We also want to dive into real estate appraisals, because we simply used a 50% baseline to determine the real estate wealth that will be absorbed by bitcoin. This could be bigger or smaller. In addition, we could try to appreciate the productivity gains that bitcoin will bring in the future, as well as the high propensity to hold an asset without counterparty and without risk of dilution.
The number of global wealth comes from Visual capitalist and “Bitcoin Mimesis Investment Research Report.”
This is a guest post by Mimesis Capital. The views expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.