Valuing Bitcoin is hard. Analysts can’t value it as they value a traditional company. There are no earnings or dividends to look at or management teams to evaluate. Despite those challenges, Wall Street still tries.
The latest Bitcoin potential price comes from J.P. Morgan strategist Nikolaos Panigirtzoglou. He wrote Tuesday that Bitcoin could be worth as much as $146,000. That’s up roughly 350% from recent levels.
Bitcoin, sometimes referred to as digital gold, is often compared to the precious metal. Investors still hold gold as a hedge against inflation and as a way to diversify returns away from stocks and bonds.
Bitcoin’s potential convergence with gold in investment portfolios, is how Panigirtzoglou comes up with his target for the cryptocurrency. He believes there is about $2.7 trillion of “private gold” in the world, which excludes the gold held by central banks. The value of all the Bitcoin in circulation, meanwhile, is roughly $575 billion.
This market cap of Bitcoin, he wrote, “currently would have to rise by 4.6 [times] from here, implying a theoretical Bitcoin price of $146,000, to match the total private sector investment in gold via ETFs or bars and coins.”
But for Bitcoin to reach parity with gold as a store of value, it would have to be a less volatile. Gold, for instance, has ranged from about $1,450 an ounce to $2,075 an ounce over the past year. That $624 gap is equal to about 35% of the midpoint of the high and low prices.
Bitcoin, on the other hand, has ranged from about $6,800 to $35,000 over the past year. The almost $21,000 spread is about 135% of the midpoint of the high and low price.
Volatility makes it hard to use Bitcoin as a traditional portfolio diversification tool.
Panigirtzoglou does appear to believe the Bitcoin market is overheated: “While we cannot exclude the possibility that the current speculative mania will propagate further, pushing the Bitcoin price up toward the consensus region of between $50,000 to $100,0000], we believe that such price levels would prove unsustainable.”
The $146,000 figure isn’t an official price target, yet Panigirtzoglou does think it can be a long-term target as Bitcoin volatility fades and as people get used to the idea of putting investment dollars into a cryptocurrency.
He also has another thought about valuing Bitcoin: intrinsic value. Gold’s intrinsic value, in theory, is some spread over what it costs to mine the metal. Bitcoin is also “mined”—by running complex calculations through computers, which use electricity. He estimates it can cost Bitcoin miners roughly $10,000 to get a single Bitcoin for their efforts.
Write to Al Root at [email protected]