We refine a bottom-up, quantity-clearing framework of Bitcoin price formation that couples its fixed 21-million-coin cap with plausible demand growth and execution behavior. This approach relies on first-principles economic supply-and-demand dynamics rather than assumptions about anticipated Bitcoin price appreciation, its price history, or its potential effectiveness in demonetizing other asset classes. We considered five key high-level factors that may affect price determination: level of market demand; intertemporal investment preferences; fiat-denominated withdrawal sensitivity; initial liquid supply; and daily withdrawal levels from liquid supply. With a goal of both increasing understanding of the impacts of price drivers and developing probabilistic forecasts, we show two models: (1) a baseline to assess the impacts of parameter changes, alone and in combination, on Bitcoin price trajectories and liquid supply over time and (2) a Monte Carlo simulation that incorporates uncertainty across a range of uncertain parameterizations and presents probabilistic price and liquid supply forecasts to 2036. Our baseline model highlighted the importance of liquid supply and withdrawal sensitivity in price impacts. The Monte Carlo simulation results suggest a 50% likelihood that Bitcoin price will exceed USD 5.17 M by April 2036. Generally, prices from the low single millions to the low tens of millions per Bitcoin by 2036 emerge under broad parameter sets; hyperbolic paths to higher price levels are relatively rare and concentrate when liquid supply falls near or below BTC 2 M and withdrawal sensitivity is low. Our results help locate where right-tail risk and disorderly market outcomes concentrate and suggest that policy tools are available to help guide trajectories.
Rudd et al. (Wed,) studied this question.
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