The idea of Bitcoin reaching a staggering $1 million per coin often seems like a pipe dream to many investors. However, according to Matt Hougan, the Chief Investment Officer (CIO) of Bitwise Asset Management, such skepticism is often rooted in a misunderstanding of how to value the cryptocurrency.
In a recent memo, Hougan argues that the traditional approach to valuing Bitcoin, which relies on static calculations, fails to account for the dynamic nature of the global store-of-value market. This market, which includes assets like gold and Bitcoin, has been expanding rapidly over the past few decades, driven by factors such as rising government debt, geopolitical tensions, and loose monetary policies.
Reevaluating the $1 Million Bitcoin
Hougan’s analysis challenges the notion that a $1 million Bitcoin is unrealistic. He points out that many people dismiss the idea because it would represent a 14-fold increase from current levels. However, he believes that this perspective is shortsighted.
“$1 million sounded absurd—even to me,” Hougan wrote. “I no longer see it that way.”
Hougan frames Bitcoin as an emerging store-of-value asset that is increasingly competing with gold. To estimate Bitcoin’s potential value, he suggests calculating the total size of the store-of-value market, estimating Bitcoin’s share, and dividing by the asset’s fixed supply of 21 million coins.
The Growing Store-of-Value Market
According to Hougan, the global store-of-value market is currently estimated at just under $38 trillion, with gold accounting for about $36 trillion and Bitcoin representing around $1.4 trillion, or about 4% of the market. At today’s market size, Bitcoin would need to capture more than half of the store-of-value market to reach $1 million per coin, which seems highly unlikely.
However, Hougan’s argument hinges on the assumption that the market will continue to grow. He points to the expansion of gold’s market capitalization over the past two decades as evidence. In 2004, when the first U.S. gold exchange-traded fund (ETF) launched, the metal’s market value was around $2.5 trillion. Since then, it has risen to nearly $40 trillion, driven by macroeconomic uncertainties.
Projections and Assumptions
If the store-of-value market continues to expand at a similar pace, Hougan estimates it could reach approximately $121 trillion within a decade. Under this scenario, Bitcoin would need to capture about 17% of the market to reach a price of $1 million per coin. While this would still represent a significant increase from its current share, Hougan argues that it is not unrealistic given Bitcoin’s recent progress and institutional adoption.
Institutional adoption has accelerated, particularly with the launch of U.S. spot Bitcoin ETFs. Large asset managers, endowments, and sovereign wealth funds are beginning to allocate capital to Bitcoin, and professional investors are expanding their portfolio allocations from around 1% to levels closer to 5%.
The Future of Bitcoin
While Hougan acknowledges that the projections depend on key assumptions, he emphasizes that the central mistake is using a fixed denominator to value an asset in a growing market. He believes that the base case—where the store-of-value market continues to grow as it has, and Bitcoin continues to gain market share—leads to much higher prices than we see today.
“The global store-of-value market will be ~$121 trillion in 10 years,” Hougan wrote. “Bitcoin only needs to take 17% of the market to be worth $1 million a coin.”
At the time of writing, Bitcoin is trading near $70,000. While the path to $1 million is far from certain, Hougan’s analysis offers a compelling argument that the dream is not as far-fetched as it might seem.
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