Key Insights
VanEck’s Bitcoin valuation scenarios include projections of BTC reaching $2.9 million by 2050. Such a price increase could be driven by its adoption as a global medium of exchange and a reserve asset.
Bitcoin Reaching $2.9 Million by 2050
VanEck anticipates Bitcoin solidifying its role as a primary international medium of exchange by 2050, ultimately becoming one of the world’s reserve currencies. This projection is rooted in the expected erosion of confidence in current reserve assets.
The firm believes that Bitcoin’s scalability issues, which have posed the main barrier to mass adoption, will be addressed through emerging Layer-2 solutions. Furthermore, the combination of Bitcoin’s immutable property rights and the principles of sound money, along with the enhanced functionality provided by L2 solutions, may facilitate the creation of a global financial system capable of meeting the needs of developing nations.
According to VanEck, it is plausible that by 2050, Bitcoin could be used to settle 10% of the world’s international trade and 5% of domestic trade. Such a scenario would result in central banks holding 2.5% of their assets in BTC.
A Bitcoin price of $2.9 million by 2050 would imply a total market capitalization of $61 trillion. VanEck noted that by applying the existing framework for valuing Ethereum Layer-2s, they estimate that Bitcoin L2s could collectively be worth $6.6 trillion, or approximately 12% of Bitcoin’s total value.
Shifting Trends in the International Monetary System
VanEck also explores the current shifting trends within the International Monetary System (IMS). Persistent trends within the IMS favor Bitcoin’s rise as global economies move away from current reserve currencies.
The primary driver of this change is the declining relative GDP of current economic leaders – the USA, EU, UK, and Japan. Another catalyst for change will be the diminishing confidence in current reserve currencies and their ability to serve as long-term stores of value due to deficit spending and short-term geopolitical decisions. Additionally, rising concerns regarding property rights guaranteed by Western monetary and financial systems, especially in the USA, are noteworthy.
All these factors will compel businesses and consumers worldwide to recognize the endemic deficiencies of alternative fiat currencies. In such an uncertain environment, there will be a demand for a neutral medium of exchange with immutable property rights and predictable monetary policy – Bitcoin.
Decline of the Euro and Yen in Global Trade – Future Trends
VanEck also addressed the fact that trade settled in USD remains stable, while the EUR and JPY continue to decline. The dollar’s status in international use has been relatively stable for the time being.
Decline of Major Currencies in Global Trade
Recent trends indicate that currencies such as the Euro and Yen have experienced a decrease in their share of cross-border settlement in global trade. This reduction in foreign exchange (FX) settlement and reserves has coincided with a relative decline in GDP, defense spending, and debt-to-GDP ratios in the European Union and Japan.
Correlation Between GDP Decline and Cross-Border Payments
The decline in GDP is correlated with cross-border payments (CBP), suggesting that Japan, the UK, and the EU are likely to lose their FX market share. VanEck has also analyzed future trends for the major four currencies, particularly focusing on debt scenarios and interest rates projected for 2050.
VanEck’s Projections
VanEck has revealed several projections regarding the economic landscape:
- Interest expenses for the four major governments are expected to increase.
- There will be a deterioration of property rights.
- There will be an increased use of sanctions.
- A new international monetary system will emerge, with the Chinese yuan as a beneficiary.
- A multi-polar currency system will be established.
Bitcoin as a Reserve Currency
VanEck has outlined the characteristics that make Bitcoin a useful reserve currency:
- Lack of trust issues.
- Neutrality.
- Immutable monetary policy.
- Perfect property rights.
Additionally, the firm provided key reasons why countries do not trade in gold:
- Physical inconvenience and logistical challenges.
- Lack of flexibility.
- Security risks.
- Technological and financial integration hurdles.
Bitcoin’s Transaction Speed and Scaling Solutions
VanEck also revealed that Bitcoin’s transaction speed in 2024 is projected to be only 25% of its 2018 figures. The solution lies in scaling Bitcoin through Layer 2 (L2) solutions.
The Bitcoin community is actively working on scaling BTC in a way that generates essential revenue for miners by encouraging more transactions. Part of this shift will also introduce minor yet crucial changes to Bitcoin’s core software.
The necessity for Bitcoin scaling has led to the development of various solutions that transfer its value without utilizing its blockchain. These solutions are referred to as L2.
Off-Chain Scaling Components
The off-chain scaling segment of Bitcoin comprises two major subcomponents:
- Users leveraging centralized players to create cryptos backed by BTC on other blockchains.
- Users employing decentralized systems.
The Lightning Network
VanEck discusses the Lightning Network, which facilitates the creation and transmission of Bitcoin certificates off-chain through a user-created network known as Payment Channels. Users can transact freely off-chain and settle by closing the Payment Channel, finalizing changes as a single Bitcoin transaction. Payment Channels are part of the broader “State Channels” solution, allowing off-chain BTC to interact with decentralized applications (dApps), with results settled periodically.
Bitcoin Valuation by 2050
VanEck employs a straightforward equation of the velocity of money, incorporating three components:
- The GDP of local and international trade settled in Bitcoin.
- The supply of active BTC in circulation.
- The velocity of BTC.
Furthermore, VanEck highlights that over the past 15 years, Bitcoin has demonstrated remarkable resilience across multiple economic cycles. Their price prediction of $2.9 million for BTC is set for 25 years into the future and is based on the assumption that more people will adopt Bitcoin as a medium of exchange.
They noted that Bitcoin’s future value stems from the widespread belief that it is the ideal currency capable of succeeding in less conventional forms of money. According to VanEck, the memetic value of BTC as sound money serves as the strongest foundation upon which Bitcoin stands.
