"My Crazy $17,000 Target For Bitcoin Is Looking Less Crazy"

Authored by Charles Hugh Smith via OfTwoMinds blog,

The basis of this admittedly crazy forecast was simple: capital flows.

image courtesy of CoinTelegraph

I think we can all agree that bitcoin (BTC) is "interesting." One of the primary reason that bitcoin (and cryptocurrency in general) is interesting is that nobody knows what will happen going forward.

Unknowns and big swings up and down are characteristics of open markets. It's impossible to forecast bitcoin's future price because virtually all the future inputs are unknown.

We've lived so long with managed markets that only loft higher that we've forgotten that unmanaged markets are volatile and full of unknowns. We've forgotten that markets are reflections of all sorts of things, from human emotions to herd behavior to changes in the underlying Mode of Production, i.e. how stuff gets done, made, distributed and paid for.

Last May, when bitcoin was around $580, I distributed a back-of-the-envelope forecast of $17,000 per bitcoin to my subscribers and patrons ($5/month or $50 annually). (In June, I presented the case to subscribers of PeakProsperity.com, where I'm a contributing writer.)

The basis of this admittedly crazy forecast was simple: capital flows. There is around $300 trillion in financial "wealth" sloshing around the global economy, and another $200 trillion in real estate. (The sum of financial wealth is now much higher, due to the extraordinary gains in global markets.) I reckoned that if a tiny slice of that financial wealth flowed into bitcoin--1/10th of 1%-- the inflow of capital would push bitcoin to around $17,000 per coin.

If 1% of all that wealth sloshing around looking for yield and safety decided to find a home in bitcoin, the forecasted price was an insane $170,000.

Compared to this, $17,000 per BTC looked almost conservative. But since bitcoin was under $600 at the time, $17,000 looked pretty darn crazy. But the math looked compelling to me: $300 trillion in mostly mobile capital sloshing around an inherently unstable system, and little old bitcoin was worth a meager $9 billion. Given that the total number of bitcoin was limited to 21 million, it didn't seem much of a stretch to imagine a tiny sliver of all that capital flowing into BTC.

I heard many reasons why my scenario didn't hold water. Fair enough: the future is unknown, I could have been completely wrong, and BTC could have dropped back to $60 or $6.

I repeated my analysis to my subscribers and patrons in December 2016, when BTC had reached $900.

So now we know bitcoin didn't go to $60, or zero; it has climbed to $9,500 or so, a bit over halfway to my rough and unsophisticated back-of-the-envelope forecast of $17,000. Could BTC suddenly drop to $7,000? Of course it could; given its history, we should expect dizzying declines of up to 30% or more.

The interesting thing to me is that nobody knows what will happen going forward. Not knowing is refreshing. So is the opportunity to be right or wrong. This is what investing is supposed to be about.

There are all sorts of scenarios out there. Some will be right, some will be wrong, some will be half-right, and in all likelihood, stuff will happen that nobody predicted.

Here is a chart prepared by Tuur Demeester way back in 2013. It's interesting because nobody has a crystal ball, so we're all guessing based on what we expect to happen and what we see as the primary dynamics in play.

For what it's worth, here are my notes to subscribers/patrons from last May/June. To me, this was more or less stating what I took to be obvious. As for all the quibbles about centralization and decentralization: yes, yes, yes and yes--I realize fiat currency issued by banks has certain features of decentralization and that bitcoin is vulnerable to the dominance of (or manipulation by) self-serving players. But the question boils down to: what matters most going forward?

Musings Report #21 5-21-16 (emailed to subscribers/major patrons)

Unlike precious metals, crypto-currencies are easy mediums of exchange: you can send or receive bitcoin as easily as you send or receive dollars with PayPal, Dwolla or similar services. The great problem going forward for many people will be transferring their remaining financial wealth out of depreciating currencies in their homeland to some other currency in another more stable country.

When governments clamp down on bank transfers and impose other capital controls, this will become increasingly difficult in conventional channels. Should demand for bitcoin rise, the price will skyrocket. Right now all 17+ million bitcoin in existence are worth about $8 billion--a drop in the bucket of the world economy's $200+ trillion in financial assets and a tiny sliver of gold's global $7 trillion valuation.  It would take very little to push bitcoin's valuation to $80 billion, and this would still be a very thin slice of total financial assets.

Musings Report #22 5-28-16 (emailed to subscribers/major patrons)

The primary reason to follow crypto-currencies such as bitcoin and Ethereum's ether currency is that they are outside the control of the self-serving exploitive elites that control the credit money issued by central banks and states.

Crypto-currencies are revolutionary because they are independent of central banks and an easy medium of exchange. Gold and silver are independent forms of money, but other than silver coins, the precious metals don't lend themselves to acting as mediums of exchange in an increasingly digital world.

The key point here is the current financial system is highly centralized, while crypto-currencies are decentralized. Should a government decide to recapitalize bank losses with a bail-in, i.e. expropriating depositors' money to cover banks' losses, as was done in Cyprus, the depositors have no recourse: the state sends the order to the banks and the depositors' accounts are legally robbed.

While some people believe the government will be able to outlaw the use of crypto-currencies, or expropriate bitcoin just like it does with regular bank accounts, the decentralized nature of crypto-currencies makes this more difficult than in a system dominated by five Too Big To Fail banks and a central bank.

Another reason to follow the growth of blockchain applications (the technology underpinning bitcoin) is that these big banks have jumped on the blockchain and "smart contracts" technology of Ethereum. The politically potent banks recognize that they must either adopt these technologies or they will wither on the vine, and they will not look kindly on any government effort to outlaw the technologies that are their future.

The last reason to follow crypto-currencies is their potential to gain value. In a currency-swap, bitcoin acts solely as a medium of exchange between yuan and dollars. But due to the structural limit on the total number of bitcoin that can be created/mined (21 million, of which 17 million are in circulation), bitcoin is a store-of-value currency as well as a medium of exchange.

Global financial assets total $294 trillion.

All the gold in the world is currently worth about $7 trillion.

All the bitcoin in circulation total $8 billion--an order of magnitude smaller than gold. Were bitcoin to represent 1% of total global financial assets, i.e. $2.9 trillion, that would represent a 362-fold increase, suggesting a price per bitcoin of $172,000.

That sounds insane, so let's say bitcoin becomes a mere 1/10th of 1% of total global financial assets. That equates to a price of $17,000 per bitcoin.

Impossible? let's check back in 5 years in 2021, and in 10 years, in 2026, before we declare this impossible.

In June 2016, I wrote:

The point is that value is ultimately driven by demand, and demand is driven by utility. As bitcoin’s utility increases in a world of rising financial repression, capital controls and expropriations, devaluations, etc., the demand for bitcoin will likely rise as well.

And as bitcoin’s stability and valuation increase, the potential for a self-reinforcing feedback loop increases: as bitcoin’s value rises, it attracts more capital, which pushes prices higher, and so on.

Perhaps bitcoin will remain a financial novelty; perhaps it will suffer some fatal technological snafu. Maybe some new cryptocurrency will replace bitcoin. All of these are possibilities. But at this point, given the seven-year history of bitcoin and cryptocurrencies, the regulatory acceptance of the technology in the U.S., the Gold Rush mentality of major corporations into these technologies, and the rise of financial repression globally, it seems like a reasonably safe bet that cryptocurrencies may not just be around in seven years--they might play a larger role in global finance.

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Comments

DownWithYogaPants BaBaBouy Tue, 11/28/2017 - 14:47 Permalink

I am hoping BitCoin et al in the stronger CC hold up to the Private Central Banker's attacks which are sure to follow. There are many avenues of attach and I would suggest rather than blanking poo poo'ing BTC because it is doing what you think gold should that you should be expositing more about what these sociopaths in with the money power will do in regards CC because CC ain't going away.Quite indeed if they do suceed in any measure of prying power out of our Owners the Lourds and Masters of the Money Power that will go a long way towards liberating gold and silver.

In reply to by BaBaBouy

DownWithYogaPants IH8OBAMA Tue, 11/28/2017 - 14:52 Permalink

You gold fucks just ooze jealousy.  Get over it.  A more objective viewpoint is in order.  It may be that BTC goes to 0 but that won't make such a poorly thought out position correct.  If you have a cogent analysis that is better than "Meh gold" please share it.Any attacks on CC will in the end be dealt with and make it stronger.I do like McAfee quite a bit.  However it might almost be worth the entertainment factor if he had to BBQ his own dick and eat it.

In reply to by IH8OBAMA

hedgeless_horseman IH8OBAMA Tue, 11/28/2017 - 14:57 Permalink

 

When HODL becomes GTFO, what is your exit plan, and how long will it take to execute? Let's say that you followed my guide to buying Bitcoin and losing it in a boating accident, and you are still using Coinbase to buy and sell BTC, or have linked your account to GDAX.  What is your maximum daily sell amount in dollars, and how does that relate to the size of your account?  Do you know? http://www.zerohedge.com/news/2017-11-28/what-your-exit-plan-and-how-lo…

In reply to by IH8OBAMA

nope-1004 IH8OBAMA Tue, 11/28/2017 - 15:07 Permalink

The whole Tether ponzi is totally a shell game.  Price of bigcoin is being ramped by nefarious and illicit means.  It has even been admitted by those doing it!!!!Bigcoin is going to wipe out a ton of people and make them leary of the next wave of crypto's.... the legitimate wave instituted by .govs.As for CHSmith and his "if only 1% of hedge funds invested in bigcoin.....".  Same bullshit shitty argument about any other class, and was done in gold too back in the day.  In fact, these comments are all just recycled 6 years later with BTC replacing gold.  Nothing new.The human mind and logic clings to bubble mentality.

In reply to by IH8OBAMA

nope-1004 BLOTTO Tue, 11/28/2017 - 16:38 Permalink

A lot of money has been going from Tether to Bitfinex and also Poloniex and Bittrex by the look of things. Some users are pointing out there are a total of 20 million new tokens and not just ten million. A very worrisome development, to say the least. The CEO of Bitfinex and Tether is one and the same person. This shows there may be some real collusion between both entities. Proving this is the case isn’t as easy as one would like it to be, though. One thing we do know is how the new 10 million was sent to Bitfinex directly. This cannot be coincidental whatsoever, especially as it is not the first time this has happened. At this rate, Bitfinex will quickly become the new Mt. Gox. That is a situation everyone is looking to avoid first and foremost.

http://www.newsbtc.com/2017/11/27/tether-shenanigans-continue-usdt-supp…

In reply to by BLOTTO

The_merovingian I_rikey_lice Tue, 11/28/2017 - 16:15 Permalink

What's the market cap for Teether? What's the market cap for Bitcoin?Yes, there is some dubious things going on with Teether, but before you draw any conclusion, read the description first and use your fucking brain. Teether was maybe a threat 6 month ago, we are way past that now. Even if Teether would go down, BTC wouldn't even notice (Bitfinex may tho).

In reply to by I_rikey_lice

rbianco3 E-Knight Tue, 11/28/2017 - 18:07 Permalink

It cannot be inflated, the maximum number of Bitcoins will always be 21 million. This cannot be said for all crypto currencies or they allow for a much larger number of coins.21 million is a pretty small divisor when it comes to wealth on a global scale, even at 1% market adoption- nowhere near bubble this is analagous to the Oil wealth created hundreds of years ago. Will you be one of the millionaires (along with myself)? Optimistic yes, opportunity of a lifetime maybe.  One million Bitcoin will happen if the currency becomes the standard in a handful of years. I have 99% of my cryto holdings in pure BTC and 1% in Litecoin, Ethereum.

In reply to by E-Knight

Trogdor DownWithYogaPants Tue, 11/28/2017 - 15:31 Permalink

I don't hold any CC, but I would love to see it go to the moon as I have friends who have quite a bit and would love to see them become very wealthy. I don't poo-poo CC's - and I do wish that I would have started mining it back in the day when I was first exposed to how to go about it (shoulda-woulda-coulda) - but damn if it doesn't feel a lot like gambling to me.

If I was sitting on some, I'd be cashing at least some of it in and converting it to something that will be around should the grid go down ;)

In reply to by DownWithYogaPants

bcking J S Bach Tue, 11/28/2017 - 14:50 Permalink

BTC $10 <--- "It's a bubble"BTC $100 <--- "It's a bubble"BTC $500 <--- "It's a bubble"BTC $1,000 <--- "It's a bubble and tulip bulbs"BTC $2,000 <--- "It's a bubble and tulip bulbs"BTC $5,000 <--- "It's a bubble and tulip bulbs"BTC $7,000 <--- "It's a bubble and tulip bulbs"BTC $10,000 <--- "It's a bubble and tulip bulbs"BTC $20,000 <--- "It's a bubble and tulip bulbs"BTC $50,000 <--- "It's a bubble and tulip bulbs" 

In reply to by J S Bach

Advoc8tr I_rikey_lice Tue, 11/28/2017 - 20:25 Permalink

How exactly does converting other cryptos to USDT as opposed to buying them for USD instantly make it a scam ?  The "other cryptos" are sold for USD ultimately. The whole point of the USDT is that it's price stays fixed at  1 USD so as demand increases they must "print" more and conversely "burn" them when demand drops.  Sounds like FUD to me.

In reply to by I_rikey_lice