Is Bitcoin Worth $10,000 or $150,000?

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Bitcoin
investors may be breathing easier now that prices, which slumped to their lowest level in months, have recovered. But the cryptocurrency’s next move is only getting murkier.

Crypto markets have turned more volatile and tightly correlated to equities as investors try to gauge the impact of rising interest rates and the Federal Reserve’s stricter monetary policies. Technical analysis has proven largely futile–

Bitcoin
prices have blown through both support and resistance levels over the past few weeks, defying chartists trying to predict its next move.

Wall Street can’t seem to agree on where the largest crypto is going, either. Strategists at Stifel and

J.P. Morgan

came out with widely divergent views this week, highlighting the challenges of trying to model prices for an inherently unruly and unpredictable asset.

In the bearish camp, Stifel’s head of equity strategy, Barry Bannister, sees a crash in 2023, with prices falling all the way to $10,000. Bitcoin, he predicts, will tumble because of the Fed’s efforts to tame inflation, which will result in higher bond yields and far less capital available to put in high-risk assets. The crypto has historically been responsive to changes in Fed policies, he says, indicating that the bottom may be far below recent prices in a long, tightening cycle.

“The Fed is saying, we aren’t going to give you free money forever,” Bannister says. “That may have a marginal effect this year, but in 2023 the Fed will probably go too far and Bitcoin will get crushed.”

J.P. Morgan takes a more mixed view. Bitcoin’s fair value is now $38,000, according to global markets strategist Nikolaos Panigirtzoglou. He reaches that target based on expectations for the cryptocurrency becoming four times as volatile as gold, down from five times currently. Bitcoin’s volatility is its biggest challenge for getting into institutional portfolios as an alternative or complement to gold, he notes. Demand and prices would rise with lower volatility.

At three times the volatility of gold, one of Panigirtzoglou’s upside scenarios, Bitcoin would be worth $50,000. That’s well below his upper-end “theoretical” price target of $150,000, which assumes Bitcoin’s volatility matches gold’s and beats out the precious metal as an investment asset. “Needless to say, such convergence…is unlikely in the foreseeable future,” he says.

So how much will Bitcoin be worth in a year? “That’s the last question I’d try to answer,” says Michael Cembalest, J.P. Morgan’s chairman of markets and investment strategy, overseeing more than $3 trillion in assets.

The strategist, who won’t even venture a guess, wrote a scathing report on crypto this week called The Maltese Falcoin. The title refers to a 1941 movie about a detective who embarks on a global goose chase to find a valuable statue that turns out to be worth nothing.

Crypto also promises riches, Cembalest says. But he doesn’t buy the argument for Bitcoin as a transaction currency largely because it’s too volatile, thinly traded, and easily manipulated in price. “I believe in the store of value argument,” he says, “But I  don’t have a valuation tool and the volatility is still way too high.” Real estate and equities, he notes, can be measured by expected cash flows, while bond yields take their cues from inflation, and commodities from supply and demand curves.

Bitcoin, by contrast, has few credible reference points to assess its worth, Cembalest says. One of the more popular measurements is known as Metcalfe’s Law–the idea that the market value of a network grows proportionally with its number of users. Based on its network growth, Bitcoin’s price looked overvalued by that measure in mid-2021, according to

Goldman Sachs
.

But Cembalest argues that Metcalfe is largely useful as a comparative tool–indicating the relative values of rival blockchain networks. “It tells me if Bitcoin is cheap relative to

Ether
or

Doge
and much less about the absolute level,” he says.

That said, Bitcoin could increasingly compete with gold and other safe-haven assets. Bitcoin’s immutable software code increases the supply of the token at a rate similar to increases in gold supplies, both rising 0.5% to 1% a year. That scarcity helps gold hold up during periods of economic stress and high inflation, and it isn’t a stretch to think Bitcoin could serve the same function in the digital era. Bitcoin could also take off as a store of value in countries with foreign-exchange controls, dual-currency regimes, governance and corruption issues, Cembalest observes.  

The key will be volatility–the higher it stays, the lower demand from long-term institutional funds. Conversely, receding volatility could lift demand and ultimately support higher prices for Bitcoin as an alternative to gold.

The analogy to gold isn’t perfect, Cembalest says, but “a starving man isn’t picky about what’s on the menu.”

Write to Daren Fonda at daren.fonda@barrons.com