About one-quarter of the world's adults, 1.3 billion in number, have over US$10,000 each and collectively $280 trillion in wealth, which Credit Suisse defines as "the value of financial assets plus real assets (principally housing) owned by households, minus their debts."
Much of this wealth is tied up in illiquid assets like housing, leaving about $90 trillion in easily-invested broad money. How much might end up in bitcoin?
Value investors like Warren Buffett scorn a strange new asset that is hard to understand. This probably reduces potential investor interest by three-quarters to 90%. People are naturally skittish when the word "bubble" is mentioned so often. Call it $10 trillion in liquid wealth that does not dismiss bitcoin on principle.
Probably most of that wealth is held by people who have at least heard of bitcoin. Say half of them are discouraged by barriers to entry, either government censure or immature infrastructure. Access is improving rapidly: Coinbase reportedly added a million new accounts in one month, and bitcoin ATMs are present in most wealthy countries, but we might imagine $5 trillion held by people who are curious and not immediately blocked.
Many of them will do some casual research and get quickly overwhelmed by the complexity of the technology and the intensity of the hype and snake oil. Then they will notice that the price went up by $1000 while they weren't paying attention, and promise themselves to get in when the price drops again.
I reckon (very casually) that leaves about a thousand billion dollars held by people who are interested, risk-tolerant, and willing to make the effort to buy. It's quite a lot compared to bitcoin's current "market cap" of about $160 billion, though I'm not sure if that number means much for an asset at an all-time-high. If the yet-unreached bitcoin demographic invests 5% of their play money, well, it's hard to imagine what it would do to the order book, with some previous owners selling to take profits, but there is plenty of room in the Up direction. $50 billion invested at today's price would buy about a third of the existing supply of 16.7 million units, making a doubling or tripling of price at least plausible.
The most important factors are hard to gauge. At this point speculation interest far outweighs any perceived utility of the technology (which could be provided as well or better by existing alternative cryptocurrencies). The bitcoin brand and the hype are the main drivers.
It's a Keynesian beauty contest, where investors decide to buy mainly by asking if there will be a greater fool to sell to later. So the "bubble" language is appropriate, but not very helpful in making predictions without any insight into when a crash might occur.
Jamie Dimon, the CEO of J.P. Morgan, called bitcoin a "fraud" and threatened to fire employees found speculating, but did not exactly predict imminent disaster.
“I’m not saying go short… Bitcoin can go $100,000 a bitcoin before it goes down, so this is not advice on what to do, ” the chief executive said Tuesday. “I refer to it like the tulip bulb crisis.”
I reread the chapter of Tulipomania to see if there were any warnings before the bust. If there were, they were hard to spot. In the winter of 1636-37 the tulip trade was "positively booming in Holland." A contemporary made a shopping list of what you could buy with 3,000 guilders, the price of a single flower:
Eight fat pigs, four fat oxen, twelve fat sheep, twenty-four tons of wheat, forty-eight tons of rye, two hogsheads of wine, four barrels of eight-guilder beer, two tons of butter, a thousand pounds of cheese, a silver drinking cup, a pack of clothes, a bed with mattress and bedding, a ship.
Not only prize flowers, but previously worthless bulbs that had been sold by the pound were commanding "astonishing prices" by the beginning of 1637.
The great crash in tulip prices began in Haarlem on the first Tuesday of that February, when a group of florists gathered to buy and sell as usual in one of the city's tavern colleges. As was customary, an established member of the college began the day's trading by testing the state of the market; he offered a pound of Witte Croonen or Switsers for sale. The florist asked a fair price — 1,250 guilders — for the bulbs, and in the normal course of events he would have found several eager buyers. Slates and chalk would have been distributed, the tulips would have been knocked down to the highest bidder, and the rest of the day's trading would have continued in its usual frenzied way. On this day, however, there were no bidders for the bulbs at 1,250 guilders. The auctioneer offered them again, this time cutting the price to 1,100 guilders. Still there was no interest. Desperately now, he offered his bulbs for a third time, dropping his price to a risible thousand guilders the pound. Once again there were no bids.
There's no telling when the bottom might fall out from bitcoin. If BTC is mainly a meme for "effortless money" it seems likely to grow until demand is sated, which I think could take more than another year.
Hopeless to guess what might happen, I got some help from a nearby elementary school student. I asked him to plot a continuation of the price chart for the next year.
This looks as plausible as anything else, so I am going to copy mk (never a bad strategy, I think) and put my non-competitive guess at $35K.
(I should add, I also requested a plot on a log chart, providing some justification for the Dimon Max.)