Bitcoin May Reach $120,000 by 2140, Implying Annual Returns Below 1%

"Bitcoin at $120,000 in 120 Years, With Annual Returns Below 1%"

Trading participation is increasing, but issuance is slowing

Bitcoin mining may end in 2140

A new argument circulating in the market says Bitcoin’s annual return over the next century may fall short of 1%. The thesis is that Bitcoin’s fair value rises as the number of network participants grows, but slowing issuance leaves little room for returns to surge.

MarketWatch reported on June 16 that Chief Columnist Mark Hulbert used a fair-value model for cryptocurrencies to project that Bitcoin will converge to about $120,000 around 2140. That is the point when Bitcoin’s cumulative supply is projected to reach its hard cap of 21 million tokens. Slightly more than 20 million Bitcoin have been issued so far.

CNBC reported that Bitcoin first rose above $120,000 on July 14 last year. It later set an intraday record of $126,110 on Oct. 6 of the same year, before falling to $60,429 on June 5. Hulbert argued the decline amounted to a return to Bitcoin’s fair-value line. In his view, prices had climbed too far in the second half of last year, when legislation related to digital assets was under intensive discussion.

The fair-value model was first proposed to Hulbert by Claude Erb, a former commodity portfolio manager at TCW Group, a global bond manager. The framework is based on Metcalfe’s law, which holds that a network’s value is proportional to the square of the number of its participants. If a network grows by 10%, for example, its value increases by about 21% ((1.1²-1)×100).

Cryptocurrencies including Bitcoin are issued and traded through networks known as blockchains. Erb and Hulbert contend that the value of crypto assets also rises in proportion to the square of the number of participants. They used Bitcoin’s cumulative issuance as a proxy for the number of network users. With supply nearing its cap, a slowdown in network growth would inevitably curb gains in value. Their model therefore points to Bitcoin converging to $120,000 a coin by 2140, when mining is set to end. Back-calculated over the long term, that works out to an annual return of just 0.6%.

Son Ju-hyeong, Hankyung.com reporter handbro@hankyung.com