Billionaires are selling Palantir stock and buying an index fund that some Wall Street experts say could rise as much as 54,300%

Investors should never take price targets too seriously, especially if they seem too good to be true (as above). But the iShares Bitcoin Trust deserves further consideration given the benefits baked into the price targets above.

The investment thesis for Bitcoin is simple: as with any asset, price is a function of supply and demand. But demand is the most important variable in this case, because Bitcoin’s supply is limited to 21 million coins. So the cryptocurrency will become more valuable as demand increases, and less valuable as demand decreases. And spot Bitcoin ETFs could be a game changer when it comes to demand.

Spot Bitcoin ETFs reduce friction by eliminating the need for cryptocurrency exchange accounts (and the high fees associated with them), while also legitimizing Bitcoin to some extent. That’s important because a recent survey found that 63% of American adults don’t trust the security of cryptocurrency, according to Pew Research. Spot Bitcoin ETFs offer a more familiar entry point for those potential retail investors.

Likewise, spot Bitcoin ETFs also reduce friction for institutional investors, a group with $120 trillion in assets under management. If even a small percentage of those assets were put into Bitcoin, its price would rise. For example, Cathie Wood estimates that Bitcoin would be worth $3.8 million if institutions allocated just over 5% of their assets, an outcome she believes is likely in the coming years.

Importantly, while we are still in the early days of adoption, spot Bitcoin ETFs have already driven demand. After receiving SEC approval in January, Spot Bitcoin ETFs became the most successful ETF launch in history, according to Gautam Chhugani. And the iShares Bitcoin Trust was the most impressive of the group. According to The Wall Street Journal, it reached $10 billion in assets faster than any ETF ever.

Spot Bitcoin ETFs can help push the price of Bitcoin much higher in the future, and they provide a valuable source of diversification at a time when many stocks are quite expensive – Palantir is a good example. But investors should remember that cryptocurrency is a relatively emerging asset class that is prone to extreme volatility.

Bitcoin has fallen more than 30% from record highs six times in the past decade, with recoveries often taking more than a year. Similar declines are likely in the future. Investors should feel comfortable with this before putting money into Bitcoin (or spotting Bitcoin ETFs).

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Trevor Jennewine holds positions at Palantir Technologies. The Motley Fool has positions in and recommends Bitcoin and Palantir Technologies. The Motley Fool has a disclosure policy.

Billionaires are selling Palantir stock and buying an index fund that some Wall Street experts say could rise as much as 54,300%. originally published by The Motley Fool