The price of a bitcoin could soar to $100,000 within five years if enough investors embrace the virtual currency as a store of wealth, according to a leading investment bank.
Analysts at Goldman Sachs said that at present the cryptocurrency commands a 20 per cent share of the “store of value” market. The stock of bitcoin is worth about $700 billion at today’s prices, compared with the $2.6 trillion of gold available for investment, it estimated.
If bitcoin’s share of the market were to rise to 50 per cent, the price of a coin would rise to just over $100,000, for a compound annualised return of between 17 per cent and 18 per cent.
However, analysts at the Wall Street giant warned that the prodigious amounts of energy used in the bitcoin network could be a barrier to widespread adoption of the digital currency.
Bitcoin changed hands at $44,276.74 each last night, down 4.5 per cent, after rallying by 60 per cent last year. The currency exists as strings of computer code and is not backed by physical assets or mainstream currencies. Supply is capped at 21 million coins — a design feature that proponents argue makes it a hedge against inflation.
Coins were all but worthless when they launched in 2009, and it took three years before bitcoin reached parity with the US dollar. But cryptocurrencies, including digital assets such as ethereum, have sprung up in bitcoin’s wake and have become a popular bet for speculators.
Bitcoin, which is the world’s largest cryptocurrency, hit a record of almost $69,000 in November. Despite a recent stumble, the price is still nearly 50 times higher than five years ago.
The digital currency has been embraced by some institutional investors. Last month Fidelity become the largest US asset manager to launch a crypto exchange traded fund.
Governments and financial policymakers have taken differing stances on the rise of the unregulated currencies. The Bank of England views cryptocurrencies as a potential threat to financial stability and China has cracked down on digital assets by declaring all cryptocurrency-related activity illegal.
However, El Salvador made history in September when it became the first state to adopt bitcoin as legal tender. This weekend President Bukele, 40, predicted that bitcoin could hit $100,000 this year.
Zach Pandl, co-head of foreign exchange strategy at Goldman, wrote: “We think that bitcoin’s market share will most likely rise over time as a by-product of broader adoption of digital assets.” He cautioned that “consumption of real resources” in the mining of bitcoins could prove an “ important obstacle to institutional adoption”.
“Bitcoin may have applications beyond simply a ‘store of value’ — and digital asset markets are much bigger than bitcoin — but we think that comparing its market capitalization to gold can help put parameters on plausible outcomes for bitcoin returns,” he added.