(Kitco News) – The launch of multiple spot Bitcoin (BTC) exchange-traded funds (ETFs) in the U.S. ushered in a new era of legitimacy for digital assets, and according to one asset manager, set the top crypto on track for a price of $2.9 million by 2050.
That was the outlook provided by analysts at VanEck, who wrote in a report released on Wednesday, “By 2050, we see Bitcoin solidifying its position as a key international medium of exchange, ultimately becoming one of the world’s reserve currencies.”
“This projection is rooted in the anticipated erosion of trust in current reserve assets,’ the analysts said. “Crucially, we believe that Bitcoin’s scalability issues which have been the primary barrier to its widespread adoption, will be resolved by emerging Bitcoin Layer-2 (L2) solutions. The combination of Bitcoin’s immutable property rights and sound money principles with the enhanced functionality provided by L2 solutions could enable the creation of a global financial system capable of better meeting the developing world's needs.”
VanEck said that a crucial part of understanding Bitcoin's potential role in the future financial landscape requires an examination of “the current and shifting trends in the International Monetary System (IMS).”
“Persistent trends in the IMS favor the ascension of Bitcoin as the world’s economies turn away from current reserve currencies,” they said. “We theorize that the chief driver of this shift will be declines in the relative global GDP of current economic leaders such as the U.S., the EU, the UK, and Japan.”
"The changes will be further catalyzed by diminishing confidence in current reserve currencies as long-term stores of value due to unrestrained deficit spending and the short-sighted geopolitical decisions by the issuing nations,” they added. “Notably, concerns about the property rights guaranteed by Western monetary and financial systems, particularly in the United States, are growing.”
The analysts said that declining faith in the existing reserve currencies has led many businesses and consumers to recognize “the endemic shortcomings of alternative fiat currencies.” They warned that “In this environment of uncertainty, businesses and consumers worldwide are likely to recognize the endemic flaws of alternative fiat currencies, thereby generating demand for a neutral medium of exchange with immutable property rights and predictable monetary policy. This is where Bitcoin comes in.”
The report provided background information on the relationship between GDP share and currency usage, determining that “Japan, Great Britain, and the EU will decline as a portion of the world’s productivity, collectively falling from 27% of global GDP in 2020 to less than 15% by 2050.”
“We believe this will also lead to declining usage of their currencies, as the Principal Four currencies are bound to declining demographics,” the analysts said.
“Our data analysis strongly suggests that current reserve currencies have declined in importance as their issuing nations have become less economically relevant and more fiscally irresponsible,” the report said. “We believe this trend will persist and accelerate in the future.”
“Specifically, we find a substantial reason to believe that the share of cross-border payments conducted in the dollar, the yen, the euro, and the pound (“The Principal Four”) will continue to fall,” the analysts said. “Based upon our projections of their GDP share, we estimate that cross-border payments conducted in these four currencies will decline to 64% in 2050 from 2023’s share of 86%. In the vacuum left by these currencies’ decline, there is ample opportunity for Bitcoin to gain adoption as an important alternative to settle international trade.”
“While the share of the global GDP of the Principal Four shrinks, the fiscal picture of each of these nations will also grow dim,” they added. “The compound effects of demographic decline combined with low economic growth rates mean that the Debt to GDP of these nations will explode.”
VanEck projects “that federal government debt payments as a percentage of GDP for the four major reserve currency nations will be north of 5% per year,” not accounting for “cataclysmic events,” such as the September 11, 2001 terrorist attacks, the financial crisis of 2008, or the pandemic of 2020, which caused deficit spending by reserve currency nations to surge.
“In the past 25 years, the United States has endured these major catastrophes that added debt outlays worth 19%, 40%, and 26% of GDP, respectively,” they said. “Given the past frequency of these cataclysmic events in the past, we assert that it is almost certain they will continue in the future. The consequence of this crisis cycle persistence would be to raise our projections for Debt to GDP and interest rate expense. Adding three deficit spending shock scenarios over the next 26 years increases interest rate expense as a portion of GDP by ~25%.”
Citing the continued growth of debt, the analysts said “The direct consequence is that the reserve currencies of today, such as the USD, GBP, EURO, and JPY, will see their usefulness as a store of value and a medium of exchange erode.”
“The fiscal and economic issues likely facing the Principal Four portend a gradual reduction in their currencies used as reserve assets and in international trade,” they added. “However, we believe that the most powerful argument for seeing a shift away from the current international monetary system is the deterioration in property rights afforded to nations and businesses who transact and hold Dollars, Euro, Yen and Sterling.”
The reference to property rights alludes to the use of sanctions to limit certain countries’ access to the IMS.
“Over the past 25 years, the U.S. has increasingly used the power of sanctions to advance its geopolitical interests,” the analysts noted. “More explicitly, in 2022, the U.S. sanctioned 2,796 entities, a 529% increase from 2009. Though the increase in 2022 was related to Russia’s invasion of Ukraine, the trend of increasing the use of sanctions indicates a clear policy choice since at least 2001 following the attacks of September 11th.”
Along with predicting that the Chinese Yuan (RMB) could climb to 12.5% of global reserves – with the authors noting that the RMB is “now used more than the USD to settle China’s international trade” – VanEck “anticipate[s] that many countries exploring alternatives to the current International Monetary System will encounter limited appealing options,” providing a way for Bitcoin to gain a foothold.
“In short, the most challenging issues of adopting a new currency regime revolve around the trust and issuance policy of potential replacement currencies,” they said. “Quite frankly, there are not many emerging markets countries that can inspire enough confidence in their financial outlook to justify enshrining them into reserve status.”|
“Some countries may turn to China and other developing economies to hold reserve balances,” they noted. “However, many who are dissatisfied with the menu of bad reserve options may increasingly turn to Bitcoin because it solves many pain points that are afflicting current reserve currency users.”
“Bitcoin offers its holders: Trustlessness; Neutrality; Immutable monetary policy; and Perfect property rights,” VanEck argued. “Designed to replace fiat money, Bitcoin is a massive improvement over current monetary systems because its system replaces corruptible human authorities with immutable logic.”
“Bitcoin holders do not have to be concerned about an entity diluting BTC’s value, employing Bitcoin to advance political goals or Bitcoin abusing its users,” they added. “Bitcoin’s important innovation is removing the affliction of biased government actors that can prevent the property rights of BTC holders. Bitcoin is a politically and economically agnostic system that swaps out biased actors for straightforward software algorithms.”
The report discussed the challenges facing Bitcoin’s use as a medium of international trade and explained the solutions under development to overcome those challenges. It also covered the reasons why countries don’t transact in gold, including physical inconvenience and logistics, security risks, and a lack of flexibility.
“Bitcoin shares some of gold's hurdles, such as the potential for security risks,” the analysts said. “However, Bitcoin overcomes many of gold's limitations. Unlike gold, Bitcoin is inherently digital, making it easier to transfer and divide. It also offers greater flexibility through its programmability, which, despite current limitations, holds potential for future enhancements.”
“While using a neutral FX like Bitcoin (or Gold) for trade payments seems unlikely in today’s world, it’s conceivable that such a significant shift could occur in the future, driven by the need for a stable, secure, and flexible medium of exchange amid shifting geopolitics,” they said.
Taking the various factors mentioned above into consideration, the analysts used “a straightforward velocity of money equation” that incorporated “GDP of local and international trade settled on Bitcoin; the Supply of actively circulating BTC; and the Velocity of BTC” to determine Bitcoin’s predicted valuation by 2050.
“It is conceivable that by 2050 Bitcoin could be used to settle 10% of the globe’s international trade and 5% of the world’s domestic trade,” they said. “This scenario would result in central banks holding 2.5% of their assets in BTC.”
“Using assumptions about global growth, investor BTC demand, and Bitcoin’s turnover, we apply a velocity of money equation to suggest a potential price of $2.9M per Bitcoin, translating to a total market cap of $61 trillion,” they concluded. “Applying our existing framework for valuing Ethereum L2s, we estimate that Bitcoin L2s could collectively be worth $7.6T, approximately 12% of BTC’s total value.”
