When HyperBitcoin? 2051?

What is HyperBitcoin?

Here’s a poll I ran just before Thanksgiving. The greatest response for when would Bitcoin’s market cap exceed the global M2 money supply was for the earliest option of 2040. If we set aside the fiat aficionados, the median response indicates 2048. Not bad. In the rest of the article I’ll show why the wisdom of the crowd was quite good for this poll. The likely answer is in the vicinity of the green highlighted response.

People talk about “HyperBitcoinization” but it is not well defined. PlanC has mentioned the idea of using the terminology ‘HyperBitcoinIntegration’, a bit of a mouthful, but meaning Bitcoin would be tightly integrated into the financial system. Michael Saylor recently talked about Bitcoin as an asset growing to of order $240 trillion dollars of market cap around 2045, coexisting in a world with perhaps $2 to $3 quadrillion of wealth by then. And between now and then the expectation is that Bitcoin continually pulls relative monetary premium, the store of value attribute, out of the bond, equity, gold, and real estate markets.

So let’s quantify HyperBitcoinIntegration or HyperBitcoinization in this following way, and from now I will just say HyperBitcoin to define the transition to such a state for the world’s monetary system.

We note that all global wealth, some $900 trillion according to Saylor, can be denominated in the current global money supply of around $100 trillion. This is because the global GDP is also of that same order. We do not turn over our wealth every year, only a small portion of real estate, bonds, stock holdings turn over. Thus all wealth can be denominated in a money supply lower by a full order of magnitude (roughly a factor of 10 smaller) and the global economy runs on that money supply, but also with around $33 trillion of US Treasuries as the ultimate collateral asset.

Today, Bitcoin at $2 trillion is well below 1% of global wealth; to get to $240 trillion over the next quarter century amounts to moving less than 1% of global wealth each year into Bitcoin. For it to reach that market cap in 25 years only requires an average CAGR of 21% for Bitcoin’s price and the Power Law trend rate is double that for now and will still be 15% a quarter century from now.

Given this we think it is reasonable to frame HyperBitcoin as occurring around the time when Bitcoin’s market cap is comparable to that of global M2 at some point in the future.

That does not mean all national currency will be in Bitcoin, in fact national governments might well own a relatively small fraction. Just by way of a rough estimate, currently national governments own around 20% of the global gold supply. What it does suggest is that much commerce could occur denominated in Bitcoin, especially in international trade and finance. More and more companies will have added Bitcoin in their treasuries and an increasing number of contracts will be denominated fully or partially in Bitcoin terms. A broad range of Bitcoin financial products including loans, bonds, and preferred securities will be available, denominated in Bitcoin.

We are seeing movement toward governments setting up strategic Bitcoin reserves, already these effectively exist in some small countries including El Salvador, Bhutan, Singapore, Norway and the UAE via treasury holdings or sovereign wealth funds. In some cases they hold Bitcoin outright or in other cases they have positions in companies that own Bitcoin. In the US, a bill has been introduced into the Senate for a Strategic Bitcoin Reserve that could potentially accumulate as many as 1 million Bitcoin in a 5 years period, building from the initial 200,000 or so now owned by the Department of Justice (US Marshals Service).

There does seem to be a trend building and we would expect that gradually enough Bitcoin would be accumulated in some nations in sufficient quantity that would allow them to make Bitcoin legal tender (e.g. El Salvador) or to have formal Bitcoin backing of their currency in a fractional reserve manner.

We can estimate when HyperBitcoin will occur with a couple of assumptions. First we approximate global M2 as $100 trillion which is close to the correct number and is basically the sum of the US dollar, the Euro, the Chinese Yuan, the Japanese Yen, and British pound that dominate the currency markets today. Adding in all other countries would not change this number much. The US dollar and the Euro dominate international trade as the currency of denomination.

We want to determine when Bitcoin’s market cap matches global M2 and this HyperBitcoin status does not imply the end of the larger national currencies but we may find smaller countries are incentivized to choose between the Dollar, the Euro, the Yuan, or Bitcoin.

We model the growth of M2 as an exponential.

The US money supply over long periods of time grows at about a 7% rate, and the Euro M2 in the past decade has grown at 4% a more modest rate. The growth of money supply for China in the past year or two has been around 7%, and Japan’s has grown quite slowly, befitting a nation whose population is shrinking.

Because debt levels are high in the developed world, and working populations are falling, we expect significant ‘money printing’ in order to fund retired workers and inflate away the debt. Thus we use the 7% growth rate as our base case for projection. In addition the largest growth in population is not in China, Japan, or Europe, it remains in the US for developed nations and the fastest for the world the next few decades will be in South Asia, the Middle East and Africa. If global M2 grows more slowly for some reasons (war, chaos, climate crisis impacting various economies) then Bitcoin could exceed M2 sooner.

Bitcoin’s value does not grow as an exponential, it grows as a power law. We model it as a power law to the 5.9th power of Bitcoin’s age, which is found from a generalized least squares regression of the price history. The equation is log P = - 2.133 + 5.893* log T, where P is the price, T is the age of Bitcoin and the log is base 10.

Table 1. We tabulate by halving number and corresponding year (assuming uniform four year intervals), Bitcoin supply, age, the expected log price and price with a power law projection, the price rate of growth and the market cap. The final column has the projected global M2 monetary supply assuming a uniform 7% compound annual growth. (Exponential function of .0677 x elapsed time). Bitcoin’s market cap exceeds global M2 in 2052 and would match it in 2051.

With these assumptions we have built Table 1. It has the projected log price and price for Bitcoin, which together with the well-determined future supply tells us the future market cap. Note that the growth rate in price slows over time, as expected from the power law, but will still be in double digits at the epoch of HyperBitcoin. The table also estimates the future global money supply using the 7% compound annual growth factor. Interpolating back from 2052, the crossover occurs in 2051, when I reach centenarian status; I hope to live to see it.

We plot the Bitcoin market cap and the global M2 projections in Figure 1, by Epoch number, e.g. the Fourth Epoch ended with the Fourth Halving in April 2024. The lines cross just before 7 more halvings or 28 years from now.

Maybe fiat Dollars, Euro, Yuan do not die suddenly, maybe they just become more and more localized, losing out to Bitcoin for international transfers, and fiat withers away, one trading empire or nation-state or city-state at a time. If Bitcoin became the dominant currency for international trade and transfers and the default intermediate currency in the forex markets, that would be the establishment of a Bitcoin standard.

Bitcoin is the first fully precise standard for money in the history of humanity, with a fixed supply and 15 digits of accuracy. It is Money 3.0 for this third millennium. A Bitcoin Standard is on the horizon within three decades.

The hurdles ahead of Bitcoin include the world’s most valuable company Apple ($3.5 trillion), gold ($18 trillion), US treasuries ($33 trillion), and global M2 ($100 trillion). Those hurdles also move at various rates but normally single digit percentages, Apple has been increasing its cap more like 25% per annum in recent years. Gold is a key hurdle since it is a pure asset play. The underlying steep Power Law nature of Bitcoin says we will breach them all.

Figure 1. Log-linear graph of global M2 (green) assuming 7% compounded annual (exponential) growth and Bitcoin market cap (blue) under a generalized least-square regression of the power law, T^5.89. The crossing occurs a year before halving number 11, or about 27 years after the most recent fourth halving.