Why Bitcoin Will Rise to $420,000, and What It Means for Portfolios

Let’s start by looking at the size of the world’s financial assets.

Here’s the value, as of Dec. 31:

Global equity market, $123 trillion
Global debt market, $138 trillion
Global real estate market, $379 trillion
Global gold, $14 trillion
Global cash, $53 trillion
Other global assets, $27 trillion
Bitcoin, $0.8 trillion
Total, $738 trillion

If all the advisors, investors and institutions that manage these assets were to allocate just 1% of their client portfolios to bitcoin, the total flows would be $7.4 trillion. Of the 21 million bitcoins that will ever exist, 19.4 million exist today — meaning the flows would increase each bitcoin by about $378,000. Add in bitcoin’s current price — $42,000 as of Dec. 31 — and you get bitcoin’s future price: roughly $420,000.

It’s easy to see where Cathie and Michael get to their seven-figure predictions: They simply presume a larger average allocation to bitcoin than just 1%. A 5% allocation, for example, would put bitcoin’s future price at $1.9 million.

To help you decide what price you believe bitcoin will reach, you need to answer only two questions:

What percentage of the world’s allocators will allocate to bitcoin? And what will be their average allocation?

As you strive to answer these questions, consider some of the flaws in my analysis. Not everyone equally owns the world’s assets, not everyone will allocate and allocators won’t allocate equally. Furthermore, my above analysis is limited to bitcoin; if allocators do indeed choose to invest in crypto, might they not choose to buy ethereum or some other digital coin instead of (or in addition to) bitcoin?

Finally, my analysis ignores rebalancing and profit-taking. What additional issues can you think of? I’m not trying to persuade you that you ought to place shares of the new spot bitcoin ETFs into every client portfolio (although I would if I were you). Rather, I want you to proactively  evaluate the potential for this asset’s price to rise — and decide the likelihood that it might outperform all the other assets currently held in client portfolios. Are you sure that a zero allocation to bitcoin is justified?

Over the next five years, if a 60/40 portfolio grows 7% per year, a $100 investment would be worth $140 (ignoring fees and taxes). But a 57/40/3 portfolio, with a mere 3% allocated to bitcoin, might be worth from $136 (assuming bitcoin becomes worthless) to $397 (assuming Michael Saylor is correct). Ask your clients which portfolio they’d rather own: one that in five years might be worth $140, or one that might be worth $136 to $397?

As a financial advisor, your job is to examine investment opportunities based on math, not bias.

Consider the simple arithmetic I’ve provided, and see if it might help you re-evaluate your decision about allocating to bitcoin.

Ric Edelman is an author and founder of the RIA Edelman Financial Engines (earlier Edelman Financial Services). He now leads the Digital Assets Council of Financial Professionals.