Wolfgang Münchau is a columnist for DL News. He is co-founder and director of Eurointelligence, and writes a column on European affairs for UnHerd. Opinions are his own.

As part of my day job, I read newspapers from various European countries. Often, on a quiet day, German newspapers lead with investment stories.

A typical headline would be: “Bitcoin at $125,000. Is this a good time to buy?”

Or another day: “Bitcoin at $85,000. Time to get out.”

The only buying advice I would give is not to buy such newspapers.

I am not sure what advice they would give now, but I suspect they would be confused.

Bitcoin is trading in the mid-90,000s right now, with no desire to rise or fall, impervious to the political shocks this year, like Venezuela, Iran, and Greenland.

What will, however, affect the price of Bitcoin is the progressive loss of independence of the Federal Reserve.

Fed’s losing independence

It has not had much effect on the Bitcoin price yet.

The US Justice Department served subpoenas regarding testimony Chair Jerome Powell gave to the Senate banking committee about the $2.5 billion renovation of two central bank buildings.

Powell was factually right to call this an attack on the Fed’s independence, but I am not sure he was wise to broadcast a video message to condemn the move.

Central bank independence is a political arrangement. Central bankers all over the world seem to think that their independence is a birthright, a natural state of affairs. The history of central banking suggests otherwise.

Rather than hyperventilating about the US president, it would be better to look at US President Donald Trump’s assault on Powell in the context of last year’s One Big Beautiful Bill.

Its main purpose is to give Trump an envelope to raise US borrowing. The White House can only do this with impunity if it gets the Fed under at least some partial control. Powell is trying to resist but this is a fight he is bound to lose. They will get him on a technicality.

Trump’s dual assault on monetary and fiscal policy leads to a phenomenon economists refer to as fiscal dominance. This is a situation in which monetary policy does not have the means to counteract an excess of fiscal spending.

Bitcoin’s ideal backdrop

I am often writing about currency debasement.

Medieval kings debased their currencies by mixing copper into gold coins. Modern forms of debasement work through fiscal dominance — the Trump way.

For Bitcoin, this is an almost ideal backdrop. As Binance writes in a recent research report:

“Overall, the combination of fiscal dominance and financial repression creates a structurally supportive backdrop for digital assets. Expansionary fiscal policy alongside suppressed real yields weakens traditional sovereign debt dynamics, while distortions in regulated credit markets increase the appeal of alternative financial rails.”

This, in a nutshell, is the big story.

As Trump is debasing the dollar, other countries will follow him out of necessity. If their currencies were to rise against the dollar too much, they would suffer a trade shock.

Trump’s policies will inform our financial environment for the foreseeable future. Fear of currency debasement, and a bubble in private credit markets, is what will support the price of Bitcoin.

It will, however, not explain the week-to-week changes.

‘A very good hedge’

I like to think of the price of Bitcoin as what is known in mathematics as a random walk with a positive drift.

At any moment in time, the noise appears to overpower the underlying signal. But it is that signal, the drift, that drives the price in the long-run.

Bitcoin is not a good hedge against political uncertainty. It is also not a good hedge against one-off inflation shocks. But it is a very good hedge against monetary debasement.

More so than gold, it is a supply-constrained store of value. The gold supply still expands at a rate of 1.5% to 2% each year.

If you dig deep, you may find gold, but no such luck with Bitcoins. And unlike with gold, Bitcoin is a currency with which you can transact.

None of this allows us to predict short-term price movements. Some investors may have an edge over the rest of us through a deep knowledge of flows of funds. Investor appetite drives the price. But what drives investor appetite?

Bitcoin at $8 million?

I am reminded of what happened on my first day as an intern at the Financial Times in the 1980s, when I asked the venerable stock market correspondent why the stock index had fallen that day.

“There were more sellers than buyers”, he informed me.

For a long time, I thought the guy was stupid. I realised much later that he gave me the correct answer. On most days, there really is not much more to say. Most of market journalism is finding ex-post narratives for things one does not understand.

‘I don’t think anyone has a robust model to predict the Bitcoin price in the short-term

—  Wolfgang Münchau

I don’t think anyone has a robust model to predict the Bitcoin price in the short-term — anything that would beat my dumb model of a random walk with drift.

The long run is different though.

One way of thinking about Bitcoin’s value is by looking at its potential future share of the global monetary base.

The 19.6 million Bitcoins in circulation, at a price of $95,000 each, have a total market valuation of $1.9 trillion. On my calculation that is about 1.2% of the total value of broad money globally.

In the extremely unlikely event that Bitcoin would take over the entirety of the world’s monetary base, this would put the price of a single Bitcoin at $8 million.

The question then becomes what would constitute a reasonable assumption for a Bitcoin global market share?

A $1.6 million price

In a world in which the US dollar debases, in which the euro is structurally too weak to take its place, and with the renminbi essentially out of the picture, the potential is huge.

The euro’s share in global reserve assets is around 20%. The discussion about the sequestration of frozen Russian assets has done real damage to Europe’s reputation as a safe haven for foreign assets.

If Bitcoin were to take a share of 20% of global money, at the expense of the euro and the dollar, that would put its value at $1.6 million a piece.

This is obviously not a price target for this or next year, but a measure of potential in a world of debased fiat money.

I can see why some investors have very high expectations. They may well be right, but as often with tech investments, they run the risk of being too optimistic in the short-run, and too pessimistic long-term.

In my model, the short run is the random walk, which represents the volatility that we observe. The long run is the positive drift — the line that took us from $500 a decade ago to 20 times that today.

Gold has recently outperformed Bitcoin, with less volatility. It would appear to be the superior asset. The reason is the simple fact that central banks hold gold as part of their reserves, and no Bitcoins. That won’t always be the case.

For central banks the case for diversification into Bitcoin is strong. In a world of geopolitical conflict, and unpredictable US foreign policy, a blockchain is a relatively more secure place to store funds than an account at Euroclear in Brussels, that could be raided at a moment’s notice by a vote in the European Council. It is also safer than Fort Knox.

Ask yourself: if your country is subject to US sanctions for whatever reason, would you get your gold out of Fort Knox?

In a global political environment like ours, with currency debasements and financial sanctions, central banks would take imprudent risks if they kept all their reserve assets in dollars, euros and gold.

Right now, they think of Bitcoin as a risky asset that has no backing. Economists hate it, and most of them do not understand it. They are generally in denial that monetary debasement is even possible.

Prudent reserve managers, whose background is in finance, not economics, look at risk differently.

If I have one prediction for this year, it is that we are going to see some risk diversification starting to happen this year.