RESEARCH NOTE 18 December 2023
Bitcoin Will Surpass Fiat Banknotes Within Ten Years Executive Summary
Bitcoin’s size in USD will surpass that of global banknotes in the foreseeable future. Bitcoin is anticipated to grow to a market capitalization equivalent to that of global banknotes, estimated at around $8 trillion. This projection is based on its current adoption curve and associated price trends.
Bitcoin to overtake gold. The value of gold, currently at about $13 trillion, is expected to increase in the next two decades. Bitcoin, following its adoption trend, is projected to surpass this value by 2038, potentially reaching a market cap of $50 trillion, which would equate to approximately $4 million per Bitcoin.
The fastest growing asset. Bitcoin is probably the fastest-growing asset on the market, with adoption at about 20% per year and network effects adding an additional 20% per year, Bitcoin continues to surpass the growth rates of fiat, gold, equities, debt, and real estate.
A Tiny Asset When comparing the market size of Bitcoin to other asset classes, it becomes evident that Bitcoin is miniscule. With a market capitalization of only 0.570 trillion dollars, Bitcoin's economic footprint is significantly dwarfed by more traditional asset classes. Banknotes alone, representing physical currency, have a market size of 8 trillion dollars, which is more than 14 times the size of Bitcoin. This gap widens further when Bitcoin is compared to other major asset classes like global private equity at 11.7 trillion dollars, and commodities, which stand at a colossal 43 trillion dollars. These figures highlight Bitcoin's nascent state in the global financial ecosystem. Further emphasizing Bitcoin's diminutive scale, central bank assets amount to 70 trillion dollars, a value that
underscores the vastness of government-supported financial instruments. Even more striking is the comparison with global public equity and M2 (a measure of the money supply that includes cash, checking deposits, and easily convertible near money) which are valued at 94 trillion and 131.5 trillion dollars respectively. Global debt towers at 300 trillion dollars, global real estate is valued at 326 trillion dollars, and notional derivatives top the chart at 715 trillion dollars. A hiccup in any one of these asset classes dwarfs the entire Bitcoin footprint by several orders of magnitude.
Declining Bitcoin Supply Bitcoin’s market capitalization (better termed “reserves” like gold, since Bitcoin does not capitalize anything), is much smaller than typically reported by the press and popular websites. The concept of Bitcoin's market capitalization is often based on the issued supply of coins, currently about 19.57 million, which is misleading due to the actual number of bitcoins that are available and circulating. This discrepancy arises from the fact that a significant portion of Bitcoin is irretrievably lost each year. Such lost Bitcoin are permanently removed from the supply and consequently, Bitcoin’s unit price is slightly higher as a result. "Lost coins only make everyone else's coins worth slightly more. Think of it as a donation to everyone."
—Satoshi Nakamoto
Research suggests that about 4% of Bitcoin's supply is lost annually. It is estimated that the true number of Bitcoins currently in circulation is 13.2 million. That number declines by about 500 Bitcoin per day as the rate of loss now exceeds the rate of production. The decline in Bitcoin's available supply is a critical factor that traditional market cap calculations fail to account for.