An interesting thought experiment can be conducted in regards to what Bitcoin’s price would be if all fiat currency ceased to exist, and if all of that money were put into Bitcoin. This can be defined as Bitcoin’s extinguishing capacity.
There are varying answers depending on what is defined as money, and money supply estimates for this article are taken from The Money Project which was last updated in 2017. Currently, there are BTC 17.128 million in circulation, and at a price of USD 6,600 each, that yields a total Bitcoin market cap of USD 113 billion.
The Bitcoin market cap pales in comparison to any measure of global money supply but theoretically, Bitcoin or some other cryptocurrency could become the dominant form of currency in the future and maybe in a radical scenario, fiat could simultaneously become obsolete. This extreme scenario is what this article explores.
For starters, all the fiat coins and banknotes in the world amount to USD 7.6 trillion. If all of these coins and banknotes were wiped out and an equivalent amount of money was invested into Bitcoin, Bitcoin’s price would be USD 443,700. John McAfee says Bitcoin will hit USD 1 million by 2020, which would entail more than double the amount of money being invested in Bitcoin than the total supply of fiat cash in the world.
However, the total amount of fiat currency in existence is nowhere near the amount of total money in the world. Combining the money held in all of the world’s checking accounts with the total amount of fiat yields USD 36.8 trillion, and this is considered “narrow money” since it is easily accessible. If global narrow money were converted to Bitcoin, then Bitcoin’s price would be USD 2.148 million.
There is much more money in the world that isn’t easily accessible and considered “broad money”, including savings accounts, money market accounts, time deposits, and all the narrow money, totaling USD 90.4 trillion. This is probably the best measure of all the “real” money in the world, and if all broad money were put into Bitcoin then Bitcoin’s price would be USD 5.28 million.
Broad money is considered physical money, yet only comprises 8% of all the money on the books in the world. 92% of money on the books is non-physical. USD 217 trillion of non-physical money is tied up in all of the world’s real-estate, and it is quite interesting that there is nowhere near enough physical money in the world to buy all of the world’s real-estate. This suggests that the real-estate market is hyperinflated and not based on reality.
It gets worse; the governments of the world hold USD 215 trillion of debt, which is more than double all the physical money in the world. This is an excellent way to visualize how unsustainable the global economy is, and this stems from uncontrolled money printing. Bitcoin solves the out-of-control money printing problem, since it cannot be printed at will and only 21 million Bitcoins will ever be created. This fact is what could cause Bitcoin to become the primary global currency since unlimited money printing could destroy fiat currency.
If that wasn’t bad enough, the global derivatives market is somewhere between USD 544 trillion and USD 1,200 trillion, outweighing physical money by an order of magnitude. A derivative is a contract between two parties that derives value from the performance of an underlying asset. Derivatives trading played a primary role in the 2008 global financial crisis, which was on par with the Great Depression. Derivatives can be considered another example of out-of-control money printing, while simultaneously being a deceptive yet legal way for investment bankers to take physical money out of the markets.
To sum up, if all the world’s fiat is put into Bitcoin, the price per coin would be near USD 500,000, and if all the physical money was put into Bitcoin the price per coin would be near USD 5 million. While it seems like a radical possibility, a global economy tiring of a flawed system relying on a tremendous amount of money printing – itself a possible death knell for fiat – could lead to Bitcoin becoming the primary global currency.
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