7 min readAs it’s a relatively new asset class, the various models used to value traditional assets don’t apply to bitcoin. Analysts must employ less familiar methods, such as Metcalfe’s Law (the number of users determines the value of a network) and the Stock-to-Flow model (based on scarcity).
CoinShares believes Total Addressable Market (TAM) is the most appropriate valuation model because it relies on bitcoin’s share of the global money supply. However, TAM must assess the likelihood of bitcoin competing with fiat currencies, which is hard to quantify.
The other problem with TAM is it estimates bitcoin’s value at some arbitrary point in the future, so a different approach is needed to provide a shorter-term forecast. This article introduces an adoption-based valuation model developed by CoinShares that calculates how much bitcoin might be worth in 2028.
Inputs
Before exploring the inputs feeding into the model, here are two underpinning assumptions:
It relies on measurable fundamentals instead of market sentiment. While adoption is the primary driver of bitcoin’s intrinsic value, it’s notoriously hard to measure.
The model treats bitcoin as a medium of exchange rather than a speculative asset. That’s why it incorporates long-term savings- as more people allocate a small proportion of their income to bitcoin, demand increases and pushes up the price.
To sum up, the model focuses on the fundamental investment case for bitcoin, using savings as the key driver of inflows because they’re less likely to fluctuate than portfolio holdings.
Adoption rate
The model assumes that bitcoin adoption will rise steadily from its existing level of 269 million users at the end of 2023, unevenly spread across different countries, as revealed in our global bitcoin ownership study. It estimates the growth rate based on two metrics:
The seven-year average growth rate for bitcoin adoption. According to the study, the compound annual growth rate (CAGR) between 2016 and 2022 was 146%
The average growth rate of the internet in its second decade, starting with the launch of the earliest browsers in 1996, which the study found to average 15%.
Based on these figures, CoinShares believes 20% is a reasonable CAGR for bitcoin adoption over the next four years. As the chart below shows, this estimate suggests ownership would grow to 669 million people, representing roughly 7% of the global population, compared to 3% currently.
This chart illustrates how ownership varies from country to country. It tends to be higher in countries where the fiat currency is particularly weak (inflation in Turkey hit 71% in June 2024), so the model applies the 20% adoption rate equally across the board. For instance, if India’s adoption was double Australia’s in 2023 and global adoption doubles by 2028, the ownership ratio remains the same.
Savings rate
The model uses two metrics to calculate the savings rate: the income earned by a country’s residents, represented by the gross national income per person (GNI), and the average savings rate since 2018. It uses the savings rate to establish how much bitcoin each owner will buy on an annual basis.
The model assumes that 10% of the average savings rate will be allocated to bitcoin, so if the average savings rate is 10%, bitcoin will account for 1%. Here’s an example of how this calculation works. If a country has a GNI of $10,000 per annum and a savings rate of 10%, residents would buy $100 of bitcoin each year. In contrast, in a country with a GNI of $20,000 and a savings rate of 1%, residents would purchase $20 worth of bitcoin. The table below shows the annual purchases per person for a sample of developed and emerging countries.
While GNI and savings rate suggest that ownership should be higher among richer countries, population size and adoption rate also impact the amount of bitcoin purchased. As ownership is more common in emerging countries, the global average allocation per person in 2028 would be relatively low at $88, even with nearly 700 million holders. That would generate estimated inflows of $210 billion.
Flow to market cap multiplier
The final input into the model is the flow-to-market-cap multiplier.
The amount of money flowing into bitcoin is limited by the available supply, which can be deduced thanks to the transparency of blockchain technology.
This chart shows the number of bitcoin that have moved in the last year compared with how many have remained inactive. Assuming the inactive coins aren’t for sale, six million out of the total circulating supply of over 19 million are available to buyers. However, it’s impossible to forecast what price they’ll trade at.
Given the slow circulation of new coins (around 1.3 million remain to be mined over the next 116 years), the law of supply and demand suggests that price should rise as more people seek to buy bitcoin, encouraging the holders of dormant coins to make them available.
While this theory makes sense, it’s unfeasible to determine how inflows may affect price due to the lack of data. Therefore, the model uses a multiplier- a factor by which a change in one variable affects another- to estimate the impact that each dollar of inflow has on bitcoin’s market capitalisation. To choose an appropriate multiplier, CoinShares reviewed research conducted by other financial institutions on various assets, summarised in the table below. Bank of America’s estimate was considered too aggressive, so CoinShares settled on a more conservative multiplier of 10.
Results
To recap the inputs into the model:
669 million owners will hold bitcoin by 2028
Each owner will allocate 1% of their GNI towards bitcoin each year ($88 per person, totaling $210 billion)
These inflows will increase bitcoin’s market cap by 10 times
Based on a starting price of $28,880, the average in 2023, the model estimates that bitcoin will be worth around $133,000 in 2028. That said, CoinShares doesn’t consider this estimate to be a bull case for bitcoin, rather a lower limit.