In a week when bitcoin flirted with the $6,000 mark, the cryptocurrency stayed steady for most of yesterday and today. As of this writing, it was trading at $5,677, down by 0.56% since the start of the day. In the last year, bitcoin’s price has skyrocketed by 796%. This year, it is up by 466% and blew past the $5,000 mark last week and is on point to tip the $6,000 mark soon. (See also: How To Buy Bitcoin).
Now an analyst is predicting that 1 bitcoin will be equal to $25,000 within the next five years. In an interview with Business Insider, Fundstrat Global Advisor co-founder Tom Lee laid out two reasons for his prediction.
First, Lee claims that bitcoin’s price has a network effect equivalency. This means that the currency’s value will increase by the square of its number of users. In other words, the greater the number of users, the higher bitcoin’s value. According to Lee, 94% of bitcoin’s price movement in the last four years can be explained using this model. (See also: How Does Bitcoin Mining Work?)
The second reason for Lee’s enthusiasm regarding bitcoin’s price is the prospect of bitcoin replacing gold as a digital store of value in the future. “I think this next generation of young people view bitcoin as their store of value,” he said, referring to millennials as a key demographic that will propel bitcoin’s value higher. Lee estimated the bitcoin price point based on gold’s current market. (See also: Should You Buy Gold Or Bitcoin?)
According to him, the current market for gold is worth $9 trillion. Assuming a 5% of overall asset allocation from this demographic goes to digital currencies helped Lee come up with a $25,000 price point figure for bitcoin. On a short-term basis, however, Lee has a more conservative price estimate of $6,000 for bitcoin within the next five years.
During his interview, Lee did not discuss how a limited bitcoin supply might affect the currency’s value. His calculations also hinge on the currency becoming an alternate store of value to gold.
Lee might be bullish about the prospect but Goldman Sachs is bearish about it. “We think not, gold wins out over cryptocurrencies in a majority of the key characteristics of money,” analysts at the investment bank wrote. According to them, gold can be stored safely as compared to bitcoin, which may be vulnerable to hacks. What’s more, the shiny metal also has less competition versus bitcoin, which has a rapidly proliferating cryptocurrency ecosystem as competition. (See also: Goldman To Institutional Investors: Don't Ignore Bitcoin.)