Monthly Archives: March 2013

I believe that each Bitcoin could someday be worth about 440,000 dollars. This may seem like an outlandish claim, but it is very possible. Imagine that tomorrow the whole world adopted Bitcoin as the currency used for pretty much every transaction.

Here is the reasoning. The world’s GDP is about $55,000,000,000,000, 55 trillion for those of you whose eyes can’t handle that many zeros. In 2012 the annual velocity of the average dollar was about 6. The average dollar changed hands about six times. I will admit that for the sake of ease of my calculation I have assumed the same velocity for all other nation’s currencies as well as the whole world using dollars (the values of the other currencies are taken into account). I take the 55 trillion number and divide it by six to get the number of dollars in the world economy. I get 9.61 trillion. Divide that by 21,000,000 (the final number of Bitcoins) and you get $436,500 per Bitcoin.

Admittedly a lot of things have to go right for Bitcoin and wrong for other currencies before this price is realized, but  the potential is there. Even if you believe the chances of Bitcoin become a universal currency are low I would still contend that the potential for return way out ways the potential for loss. Besides as you buy Bitcoins now the price goes up and entrepreneurs look for ways to earn and exchange Bitcoin more readily. Feel free to suggest improvements for my reasoning in the comments section below.

Bitcoins have recently become a hot topic as the exchange ratio of USD to Bitcoins has gone up at a respectable rate and continues to flirt with $50. I think that Bitcoins are a relatively risky investment, but the potential returns are still huge. I could easily see buying in now and selling after a couple percent gain, but I am in it for the long haul. The number of people who have Bitcoins now is still pretty small which is easily less than one percent of the population of the US. As the price continues to go up I think that the media attention will increase.

As the Bitcoin community and infrastructure has matured and developed, the price of Bitcoin has become more resilient to price shocks. While still varying in exchange rate much faster than most other currencies Bitcoin is much more stable now than its drastic price spike and crash of 2011. In March there was even an issue in the Bitcoin system that was quickly resolved by the decentralized authority of the Bitcoin miners. The price temporarily dipped around 20% but took little time to return its previous price.

Also worth mentioning is that the publicity, Bitcoin is receiving, is much more positive than past strong criticism. The price has not responded as drastically, as before, to the increased media attention. In the bubble of 2011 the price went up very quickly then crashed. Since then the price of Bitcoins has gone to new highs much slower than previously. These recent circumstances indicate a healthier infrastructure and a gradually maturing market presence for Bitcoins.

I repeat Bitcoin is a risky investment. I happen to believe that the potential return outweighs the risk; however I make no guarantees. I own a few Bitcoins myself. Please do your own research.