Reasonable Price of Bitcoin

The following was posted as a comment by JoJo Kracko on Zerohedge. It is well worth reading as a fine example of clear headed analysis in a time of mania:

Would it be fairly accurate to say that there are 13 million bitcoins in existence today?  

At $17,000 per coin, that implies that the existing coins are worth $221 billion US dollars.  How high can we reasonably expect the value of a bitcoin to go?

Assuming 10? years from now we have 20 million of the possible 21 million in existence, could they be worth $50,000 per coin?  $100,000 per coin?  $1 million per coin?

20,000,000 x $50,000 = $1 trillion

20,000,000 x $100,000 = $2 trillion

20,000,000 x $1,000,000 = $20 trillion

I should point out that there is only $7.6 trillion worth of coins and bank notes in the world today.  If Bitcoin were to replace ALL of the circulated money used in the whole world today, there would be no need for it to be worth more than $7.6 trillion dollars.  If we can accept this, lets put a top cap on the value of what Bitcoin can logically max out at.  7.6T / 20M = $380,000 per bitcoin.    This would of course require every country in the whole world to adopt it to replace their own currencies, and would require every country to also ban the use of any other digital coin offering as a currency.

If you are thinking bitcoin could be a replacement for gold, well there is less than $7.6 trillion worth of gold that has ever been mined, if we use a $1250/oz USD value.   Is it a currency?  Is it a store of value?   Will it replace both?   Will it even be the dominant alt-coin in a year or two?   Draw your own conclusions.

A ten-fold of the current price of Bitcoin is in other words out of the question from a perspective of utility.

Furthermore, we can from the above estimate a reasonable current price of Bitcoin. We know that Bitcoin is sometimes used in transactions. Those transactions are rare. To say that as much as one in a thousand transactions are made with Bitcoin would be generous. Yet $7.6 trillion divided by 1000 is a mere $7.6 billion. That is a fraction of Bitcoin's current market cap of $220 billion.

Our generous price estimate puts a price tag for Bitcoin at $600. That's a far cry from $17000.

Meanwhile, gold is trading at $40 a gram. That puts the price of all above ground gold in the world at $6.4 trillion. Since no more than a third of this would be used as money under a gold standard, the price of above ground gold would have to go up by at least 300% in order for a new gold standard to be implemented.

Brass token currently priced at around 17,000 dollar

By Steve Jurvetson - https://secure.flickr.com/photos/jurvetson/8410385932/in/photostream/, CC BY 2.0, Link