It’s been a big year for cryptocurrencies, with the total market cap for crypto jumping 6x since January 1st – from $18B to over $111B as of June 13th.
The FOMO (fear of missing out) is real. New money is entering the market at a staggering rate – to the degree that many exchanges have had problems on-boarding and verifying their new customers to keep up with demand.
These new investors are coming in droves after hearing about sky-high returns from a friend or friend’s friend or a friend of a friend’s friend.
Once they’ve gotten through the verification process on Coinbase or Gemini or Kraken, they execute their first market order and the rush of the cryptocraze washes over them. To the MOON!
Then price drops by 10%, our new investor freaks out, convinces themselves that they’re hardly ever right, that ETH or BTC is going to $0 and that they should just cut their losses. They panic sell, adding fuel to the micro-bear run and the price continues to drop. Whew, that was close. Got out just in time.
A short time later, they see that the price is not only retracing back toward their entry price, soon they’ll realize that it will exceed it. They just bought high and sold low. They leave the market.
We’ve seen this play out a number of times this year, and as an investor myself, I too get concerned when I see the price of ETH & BTC begin a FOMO trend. I’ve seen the value of my portfolio drop by 20–50% in hours.
However, in order to counteract FOMO and any knee-jerk panic selling reaction I might have, I’ve done two things:
First, I’ve taken my coins off of the exchanges. This prevents me from having my finger on the trigger and selling in any sell-off or panic. I suggest you do the same, even if only for the security of storing your coins in a wallet to which you alone own the private key.
Second, I’ve quantified what I think Ether and Bitcoin will be worth in 2020. This personal thesis keeps me confident of the longer term state of crypto and in my investment. I’m not here to day trade, I’m here for the long term — and this helps me weather the storms. I’m not even saying I’m right, but it changes my long term perspective and makes be a more patient investor.
I think Bitcoin and Ethereum will share a $4.5 trillion market cap by 2020.
Uh ok, whoa partner, how did you arrive there? Here’s my simple explanation:
Sizing the world economy
The nominal GDP of the world economy (as of 2016) is $78 trillion. By 2020 the IMF estimates the nGDP will be $91 trillion:
Ask yourself, in three years, do you think that 5% of the world’s GDP could be stored and exchanged using blockchain technology?
Me too — for many reasons: The Enterprise Ethereum Alliance; the massive investment that world banks are making in blockchain technology; the interest in digitizing the currencies of countries like Russia, China and others; the leveling of global political power; because it’s cheap, faster and more secure than current financial technologies.
Ok, assumption granted. Now some math. If 5% of the world’s GDP in 2020 is housed on the prevailing blockchains, then the value of crypto will be ~$4.55 trillion.
If ETH/BTC are the anointed blockchains, what are the value of those networks?
For simplicity and bi-partisanship, let’s assume that BTC & ETH are equally dominant, each with 25% of the total market size of crypto, with the remaining 50% distributed across hundreds of other coins, perhaps private bank and treasury networks.
This means that BTC and ETH would each represent 25% of that $4.55 trillion, or $1.1375T each.
How much could one Bitcoin be worth?
In 2020, there will be ~18,375,000 BTC in circulation. $1,137,500,000,000 divided by 18,375,000 = $61,900 per coin, ~+2,200% from today.
How much could one Ether be worth?
This is a little harder to calculate due to the somewhat unknown supply of Ether in the future, how Proof-of-Stake might change new Ether issuance, and the impact that the Ice Age will have on time between new ETH issuance.
The original 2014 issuance model, stated a projection of ~162M ETH in circulation in 2020, however /u/manly_ pointed out that Vitalik has said it would be closer to 100M, so for our rough math we’ll use 100M ETH.
$1,137,500,000,000 divided by 100,000,000 = $11,375 per coin, ~+4,000% from today.
Ok, what if BTC and ETH are much more dominant than a combined 50% of crypto?
If BTC and ETH represent 33% of the total market opportunity each, then each would have a total value of $1.502 trillion.
BTC would be worth $81,742 ~+2,900% from today.
ETH would be worth $15,020 ~+5,300% from today.
Again, this is just an apples to apples comparison, it doesn’t take into account market speculations, dividends from Proof-of-Stake or incentives from new BIPs or EIPs, or other external forces that could factor in.
So, if 5% of nGDP by 2020 is achieved, the question becomes which could be the dominant coin?
I don’t know the answer to that. However, I do believe that there is room in the sandbox for not only BTC and ETH, but others as well. If I had to choose, I think ETH is not only at parity to BTC in it’s ability to store and transmit value, but is also the underpinning for additional value-add networks to be built on top of it, in any industry. This might tip the scales in ETH’s favor, but I do not believe this is a winner take all, zero sum game. What’s good for BTC is good for ETH, what’s good for ETH is good for BTC.
What’s good? Adoption.
Don’t FOMO your coins, the long term implications of blockchain technology are bigger than any one company, bigger than any one market segment. Keep your eye on the long term and hold your investment through short-term dips.
I’m not saying my projections are correct either, I simply want to put into world how I foresee the value of ETH/BTC, where I get my justification for holding long-term, and how I am at peace during FOMO or any other market volatility.
Edit: some readers pointed out a mistake in my math. I actually did the calculations based on 5% of the current GDP and not 2020’s. I’ve corrected the mistake.