Executive Summary
- A market capitalization parity with gold would bring bitcoin's spot price to 700,000 US dollars per unit, representing a sound long-term price target
- 21metrics' technical model supports bitcoin rising up to $100K USD this year
- Monte Carlo simulation signals bitcoin reaching $144K within twelve months
- The power law model assumes bitcoin will rise indefinitely, but the cryptocurrency's volatility and rate of increase will gradually diminish
The early year of 2024 has been eventful, starting with bitcoin's parabolic climb to its eventual all-time high of 73,580.68 US dollars on March 14th. The next month bitcoin reached its halving event, that effectively reduced its halving reward from 6.25 to 3.125. The crypto market environment has also been heavily influenced by the introduction of new spot bitcoin and ethereum ETFs.
Predicting the future is generally challenging, but with technical and fundamental models we can make educated guesses about what lies ahead. This article focuses on bitcoin price projections, specifically what price levels we can reasonably expect next year.
Gold Parity
Projection: $700K when reaching market capitalization parity with gold
"Gold is analog bitcoin, too weak to replace digital fiat. Bitcoin is exponential gold, sound money for the modern world." - Tuur Demeester
The "digital gold" bitcoin and physical gold have often been placed in a same category, as they share many common features. Both assets are particularly scarce, their supply being heavily limited.
Bitcoin is theoretically limited to 21 million units, while the circulating supply is currently at 19.66 million. However, Due to "lost coins", the actual supply in circulation will never reach 21 million.
Source: 21metrics
While gold is not limited by any maximum supply per se, its supply is scarce due to scarcity of gold deposits and the cost of mining and refining. While gold has a finite supply on earth, there have been plans to mine it from asteroids in future, shifting its supply dynamics.
Bitcoin is highly portable as it exists digitally and can be transferred globally within minutes. Gold, while valuable, is less portable due to its physical nature and weight. Gold requires physical storage, which may incur costs and security concerns. Bitcoin can be stored in digital wallets, but there are security risks associated with hacking and loss of access to wallets.
Source: PlanB
Bitcoin's current market capitalization (MCAP) is around 1.38 trillion US dollars, while gold's is at $14.73T, meaning that gold's MCAP is more than tenfold compared to bitcoin's. With the current bitcoin spot price of $70K, a market capitalization parity with gold would bring bitcoin to $700K per unit, representing a sound long-term price target.
21metrics' Technical Model
Projection: $100K by 2025
From a technical perspective, bitcoin is supported by a linear trend, which has strengthened the cryptocurrency by 56 percent since the beginning of the year. At the same time, it is also good to remember the possibility of exponential price development, as occurred during the parabolic rise of 2021.
According to Dow Theory, the bitcoin market can be divided into distribution and accumulation cycles, which together form a series of market cycles. The previous distribution cycle ended with the double peak structure in 2021 and a spot price record of approximately $69,000.
Sources: CryptoQuant, Timo Oinonen
After 2021, bitcoin's value sharply declined in 2022, culminating in a year-end capitulation and price bottom. The development in 2022 was influenced by, among other things, central banks' QT programs and the collapse of the FTX exchange as an epilogue at the end of the year.
In early 2023, bitcoin transitioned into a new paradigm and market cycle, which we call the pre-halving accumulation cycle. Of course, this phase can simply be referred to as the "accumulation cycle." Additionally, in early 2024 bitcoin encountered a new price discovery phase.
Between the current spot price and $100,000, there is a liquidity gap, which indicates a potential rise for bitcoin above the 2021 highs.
Monte Carlo Simulation
Projection: $144K by 2025
Monte Carlo simulation is a statistical technique used to forecast the future price of bitcoin. It involves running numerous random experiments, often using historical data, to estimate the probability distribution of future price movements. This method is commonly used in finance and economics to model and analyze complex systems, including cryptocurrency markets like bitcoin.
In practice, we can run a simulation to forecast 12-month returns, utilizing the Monte Carlo. A quick glance at the results show an average expected spot price of 144,000 US dollars, however 95 percent of the simulations fall between $30K and $448K.
Source: Rapha Zagury
77 percent of the bitcoin Monte Carlo simulations are positive, which can be considered as an exceptional outcome. As indicated by bitcoin's Sharpe ratio, its risk-adjusted returns are unmatched.
Power Law
Projection: $100K valuation level by the end of 2024, and a $142K by the end of 2025
Bitcoin's late 2024 and early 2025 price action can be explained by the power law model, developed by Harold Christopher Burger and Giovanni Santostasi. The power law essentially is a predictive model developed to forecast bitcoin's price trajectory.
The model fits in the same category with the law of diminishing returns, a principle stating that profits or benefits gained from something will represent a proportionally smaller gain as more money or energy is invested in it. I.e. bitcoin will continue to appreciate over time, but with a calmer cyclical pace.
Unlike the ordinary linear models, the power law forecasts bitcoin's long-term price appreciation on a log scale, meaning that both price and time scale exponentially along its Y-axis and X-axis.
Source: Giovanni Santostasi
The power law model forecasts a 100,000 US dollar valuation level for bitcoin by the end of 2024, and a $142,000 level by the end of 2025, which both represent reasonable spot price targets.
Stock-to-Flow (S2F)
Projection: >$200K in 2025
The stock-to-flow model, also known as S2F, is used to assess the scarcity of asset classes, particularly precious metals. Its creator, Plan B, had the insight to apply the model to bitcoin.
Essentially, the stock-to-flow model calculates the quantitative relationship between production and the units in circulation. Bitcoin is a particularly scarce asset class because its supply is strictly limited to 21 million native units. Bitcoin's supply is defined at the protocol level, making it easily predictable.
The divergence between stock-to-flow 365-day ratio and bitcoin's spot price reached a multi-year high at the end of November 2022, when BTCUSD hit a low of $15,829. A spot increase from that level to the S2F ratio of $49,356 would have required a 212% upward curve.
Source: Bitbo
Bitcoin's current spot price of $69,095 is significantly closer to the S2F ratio, which has risen to $138,594 over the past year. An increase in the spot price from its current level to the price indicated by the stock-to-flow model would now require a 101% demand spike.
During the seemingly endless bear market of 2022 many experts already declared the stock-to-flow model dead. However, the current positive sentiment seems to be dispelling speculations about the model's irrelevance. The price levels predicted by S2F for 2024 range between $50,237 and $186,040: a realistic target price is likely to be found between these two numbers. Amid favorable conditions it could lean towards six figures, ceteris paribus.