In a recent blog post by Matthew Sigel, Head of Digital Assets Research and Patrick Bush, Senior Investment Analyst (Digital Assets), VanEck’s digital assets research team outlined a scenario where Bitcoin could reach $2.9 million per coin by 2050. Their valuation model is based on Bitcoin becoming an integral part of the International Monetary System and gaining significant market share from the Principal Four currencies (USD, EUR, JPY, GBP). This article presents the key highlights from VanEck’s research paper.

VanEck’s Key Assumptions

  1. Bitcoin will be widely used in international trade as a medium of exchange and store of value.
  2. As Bitcoin becomes more useful and valuable, central banks and long-term investors will hold more BTC, reducing the circulating supply.
  3. Global trade will grow at 2% annually, slower than the projected 3% global GDP growth, due to populist movements and re-shoring trends.
  4. The Principal Four currencies will lose market share in international trade due to deteriorating economic fundamentals and eroding property rights.
  5. Bitcoin will capture 10% of cross-border payments and 5% of domestic trade.
  6. Central banks will hold 2.5% of their assets in Bitcoin.
  7. 85% of Bitcoin’s supply will be effectively removed from circulation due to long-term holders.
  8. Bitcoin’s velocity will be around 1.5, similar to the average U.S. monetary velocity since the Global Financial Crisis.

VanEck’s Valuation Methodology

VanEck’s model uses a straightforward velocity of money equation incorporating three key components:

  1. GDP of local and international trade settled in Bitcoin
  2. Supply of actively circulating Bitcoin
  3. Velocity of Bitcoin

The team started by estimating global trade and world GDP based on 2023 baseline figures and growth projections. They then calculated Bitcoin’s potential share of cross-border payments relative to other currencies used in international trade.

VanEck projects that the Principal Four currencies will experience a 20% market share decline, with the Chinese renminbi, Bitcoin, emerging market currencies, and gold gaining that market share. In this scenario, Bitcoin is expected to capture 10% of cross-border payments and 5% of domestic trade.

The model assumes that central banks will hold 2.5% of their assets in Bitcoin by 2050. Additionally, due to its store-of-value properties, 85% of Bitcoin’s supply is expected to be effectively removed from circulation by long-term investors.

Using these assumptions and a projected Bitcoin velocity of 1.5, VanEck’s model arrives at a valuation of $2.9 million per Bitcoin in 2050. This would represent approximately 1.66% of all financial assets, compared to an estimated 0.1% share today.

VanEck’s Bitcoin Layer-2 Valuation

VanEck also provides a framework for valuing Bitcoin Layer-2 (L2) solutions, which they believe will play a crucial role in scaling Bitcoin for widespread adoption. Their approach projects the total addressable market (TAM) revenues of businesses that will utilize public smart contract platforms like Ethereum and Bitcoin L2s.

Key points on VanEck’s L2 valuation

  1. Bitcoin L2s are expected to capture 50% of the smart contract platform market.
  2. The L2 ecosystem is projected to consist of tens of thousands of solutions, including state channels, rollups, and future technologies.
  3. Financial entities worldwide are expected to build their own L2s to house Bitcoin-related activities.
  4. The entire suite of Bitcoin L2s is valued at $7.6 trillion, representing about 12.5% of Bitcoin’s projected value.

Potential Risks to VanEck’s Valuation Model

VanEck acknowledges several risks that could impact their Bitcoin valuation thesis:

  1. Sustainability concerns related to Bitcoin mining’s energy consumption
  2. Potential failure of miner economics as Bitcoin inflation decreases
  3. Inability to scale Bitcoin effectively for widespread adoption
  4. Competition from other cryptocurrencies
  5. Community schisms leading to hard forks
  6. Potential changes to Bitcoin’s monetary policy
  7. Government bans and coordinated attacks
  8. Capture by large financial institutions
  9. Theft and hacking vulnerabilities
  10. Financial attacks exploiting Bitcoin’s economic system
  11. Core software failures or upgrade-related vulnerabilities

Conclusion

VanEck’s $2.9 million Bitcoin price target for 2050 is based on a scenario where Bitcoin becomes a significant player in the global financial system, capturing market share from traditional currencies and serving as both a medium of exchange and a store of value. The model relies on several ambitious assumptions, including widespread adoption by central banks and long-term investors, as well as successful scaling through Layer-2 solutions.

While the valuation model presents an optimistic outlook for Bitcoin’s future, VanEck also highlights numerous risks that could derail this scenario. The realization of this valuation will depend on Bitcoin’s ability to overcome technical, economic, and regulatory challenges while maintaining its core value proposition as a decentralized, trustless monetary system.

It’s important to note that VanEck’s $2.9 million Bitcoin price target for 2050 should be viewed as a speculative projection rather than financial advice or a recommendation to buy or sell Bitcoin. As disclosed in their blog post, VanEck holds positions in Bitcoin, which could influence their outlook. The valuation model presented is based on numerous assumptions and simulations that may not account for all potential risks or factors affecting Bitcoin’s future performance.

The cryptocurrency market is highly volatile and unpredictable, and actual outcomes may differ significantly from the projected scenarios. Investors should conduct their own thorough research, consider their personal financial situation and risk tolerance, and consult with qualified financial advisors before making any investment decisions in Bitcoin or other digital assets.

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