Bitwise Just Boosted Its 10-Year Bitcoin Price Target to $1.6 Million. That Would Likely Make Bitcoin the Top-Performing Asset of the Next Decade.
Key Points
To hit Bitwise's lofty price target, Bitcoin would need to grow at a brisk 34% compound annual growth rate.
Over the past decade, Bitcoin grew at a compound annual rate of 37%.
Just when investors thought the $1 million price target for Bitcoin (CRYPTO: BTC) was a relic of the past, here comes Bitwise. The crypto asset manager just put out a $1.6 million price target for Bitcoin for the year 2036.
That's aggressive given the rate of growth that it assumes for Bitcoin over the next 10 years. Most likely, if it grew that far, Bitcoin would be the top-performing asset of the next decade, and it wouldn't even be close.
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Can Bitcoin grow at a 34% clip?
Using a few back-of-the-envelope calculations, it's possible to figure out how fast Bitcoin must grow over the next decade to hit a price of $1.6 million. It works out to a compound annual growth rate (CAGR) of 34%.
Admittedly, that level of growth is par for the course when it comes to Bitcoin. In the period from 2017 to 2026, Bitcoin grew at a CAGR of 37%. So Bitwise is basically assuming that Bitcoin will continue to grow at its long-run historical rate.
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But is that a fair assumption to make? Sooner or later, the growth rate for Bitcoin has to tail off, right?
For example, JPMorgan Chase recently put out a 10-year forecast for Bitcoin, and came up with a 10% annualized growth rate over the next decade. Even in an ultra-bullish scenario for crypto, JPMorgan Asset Management only expects Bitcoin to grow at a 17% annual clip. That's exactly one-half the rate being projected by Bitwise. But the impact of compounding makes the difference over time much greater. After a decade of 17% annualized growth from its current price, Bitcoin would be worth about $370,000 -- less than a quarter of Bitwise's target.
However, JPMorgan Asset Management is only forecasting that stocks will grow at a 7.5% annual clip. So if Bitcoin does manage to crank out 34% annual returns, it would far surpass anything that the stock market is doing. Even if you're ultra-bullish on crypto, you have to admit that's unlikely.
Bitcoin's track record of exponential gains
That being said, I'm not counting Bitcoin out quite yet. It has a long track record of delivering exponential gains to investors. It grew from a price of $1 to $10 to $100 to $1,000 to $10,000 to $100,000. At each stop along the way, skeptics said Bitcoin couldn't possibly go any higher.
At some point, then, Bitcoin appears likely to reach the $1 million price level. But if you think it will happen anytime in the next decade, you should ratchet down your expectations. If Bitcoin grows at a long-run annualized rate of 10%, it could take 25 years or longer to get to a seven-digit price.
JPMorgan Chase is an advertising partner of Motley Fool Money. Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and JPMorgan Chase. The Motley Fool has a disclosure policy.