If you’ve been following potential bitcoin price targets, you know that many analysts expect bitcoin to completely consume or eat into portions of gold, money supply (M2), global fiat-denominated debt, stocks (equities) and real estate.
Once you’ve grasped the implications of bitcoin having no counterparty risk and no dilution risk, you should recognize that bitcoin will fully inhale all wealth stored in gold, M2 and global debt, but what portion of the wealth stored in equities (stocks) will be reallocated into bitcoin?
It’s a very complicated idea to ponder.
Two weeks ago, we published our thoughts on how the valuation of a fictional company, Wyoming Red Ribeyes, would change post-hyperbitcoinization. Now, we’re going to dive in a bit further and run a scenario analysis that shows how much the valuation of a typical S&P 500 company would change based on two relatively unknown predictor variables:
- The BTC inflation rate: How do we expect a relative CPI index (price of goods) to trend over time?
- The BTC equity risk premium: What expected percentage return (BTC denominated) will motivate investors to invest their BTC into publicly-traded equities?
BTC Inflation Rate
It is realistic to expect the average BTC consumer price index (CPI) inflation to fall somewhere between 0 percent and negative 10 percent. The current system attempts to produce roughly 2 percent CPI inflation annually. Since the Bitcoin monetary standard operates under a fixed supply, bitcoin savers will be rewarded with all future productivity enhancements through lower and lower prices.
Generally, it is reasonable to expect a CPI of roughly negative 5 percent, which indicates that economic growth under a Bitcoin standard will be faster and more sustainable.
BTC Equity Risk Premium
An equity risk premium is the excess return that investing in stocks is expected to provide over a risk-free real return of simply HODLing bitcoin (or potentially earning yield on Lightning Network lease channels).
This is…
