Fundstrat's Tom Lee on Friday became the first major Wall Street strategist to formally lay out his views on bitcoin.

The digital currency could be worth as much as $55,000 by 2022, Lee said in a report titled "A framework for valuing bitcoin as a substitute for gold."

"We believe one of the drivers [of bitcoin] is crypto-currencies are cannibalizing demand for gold," Lee said in the report. "Based on this premise, we take a stab at establishing valuation framework for bitcoin. Based on our model, we estimate that bitcoin's value per unit could be $20,000 to $55,000 by 2022."

Bitcoin traded near $2,540 on Friday. The digital currency has more than doubled in value for the year, and high interest prompted a Goldman Sachs technical analyst, a team of Morgan Stanley analysts and Citi researchers to issue reports on bitcoin or the blockchain technology behind it in the last few months.

However, Lee is the first widely followed market strategist to issue a report dedicated to predicting bitcoin's price. Lee also happens to be the most bearish strategist on U.S. stocks currently. He was JPMorgan Chase's chief equity strategist from 2007 to 2014 before co-founding Fundstrat Global Advisors, where he is managing partner and head of research.

The strategist's case for bitcoin is a basic supply-and-demand story, similar to the argument other proponents of bitcoin use when playing up its future as "digital gold."

Gold's market value of $7.5 trillion is exponentially greater than bitcoin's $41 billion. But Lee pointed out the precious metal's supply "is surging as mining soars to all-time highs," while the number of available bitcoins is rapidly approaching its inherent 21 million-coin limit.

"A simulation shows that this will slow even further to less than 1.5% growth by ~2020, meaning bitcoin supply will grow even slower than gold," Lee said.

Bitcoin is also theoretically a better way to store value, proponents contend, since governments can easily decrease a currency's worth by printing more of it.

The constraints on bitcoin's supply and the potential worth of the digital currency mean there will be high demand for a limited product, driving up the price. Bitcoin has already surged from below $1,000 on Dec. 31 to briefly top $3,000 in June.

Lee also expects investors could look at bitcoin as a substitute for gold, and his model shows the digital currency could be valued at $20,300 by 2022. Adding more variables to the model puts the value of bitcoin in five years in a potential range of $12,000 to $55,000.

"In other words, substantial upside exists in owning cryptocurrencies here," Lee said.

He also expects central banks will consider buying the digital currencies if the total market value tops $500 billion. Including bitcoin and its rival ethereum, the value of all cryptocurrencies hovers around $100 billion, according to CoinMarketCap.

"In our view, this is a game changer, enhancing the legitimacy of the currency and likely accelerating the substitution for gold (by investors)," he said.

Lee noted a Bloomberg news report that central banks have looked into the possibility of owning digital currencies.

In March, Federal Reserve Governor Jerome Powell cautioned in a speech about the potential challenges for a central bank to issue a digital currency, including privacy.

To be sure, digital currencies such as bitcoin often swing wildly and operate in unregulated markets. While the lack of regulation is what has attracted many buyers, many consider bitcoin the "Wild West." Three years ago, Mt.Gox, the largest bitcoin exchange then, filed for bankruptcy and said it lost 750,000 of its users bitcoins and 100,000 of the exchange's own.

The future of bitcoin is also in question. This summer, the digital currency could split if developers don't agree on the same system to upgrade bitcoin.

Lee acknowledged bitcoin's volatility in his report, noting that annualized bitcoin volatility is 75 percent, "substantially higher than gold's 10%. But as noted, gold's volatility approached 90% from 1971 to 1980 as the U.S. abandoned the gold standard hence, we expect this to improve over time."

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Top Wall Street strategist sees bitcoin 'cannibalizing' gold, worth as much as $55000 - CNBC