Risky assets tend to perform better when interest rates are low. Speculation that persistent inflation will lead Federal Reserve policymakers to cut interest rates more slowly than expected has been a headwind for cryptocurrencies in recent weeks.
While indeed Bitcoin (CRYPTO: BTC) In March the price rose to a new high of $73,000, but since then the price has fallen 7% to $68,000. However, several Wall Street analysts see significant upside for patient investors.
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Tom Lee, managing partner and head of research at Fundstrat Global Advisors, believes that the combination of recently approved spot Bitcoin exchange-traded funds (ETFs), the recent halving of Bitcoin block subsidies, and the eventual easing of monetary policy (lower interest rates ) could push Bitcoin to $150,000 by 2025 and $500,000 by 2029. The latter figure implies an increase of 635% from the current price of $68,000.
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Anthony Scaramucci, founder and managing partner at SkyBridge Capital, recently told CNBC spot that Bitcoin ETFs could propel the cryptocurrency past gold’s market cap, which currently stands at about $16 trillion. In that scenario, a single Bitcoin would be worth about $800,000, implying an increase of about 1.075% from the current price.
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Cathie Wood, CEO and CIO at Ark Invest, believes spot Bitcoin ETFs will eventually capture around 5% of institutional assets under management, pushing the price of a single Bitcoin to $3.8 million. That estimate implies an upside of about 5,480% from the current price.
As a caveat, investors should never put too much faith in price targets. They are simply educated guesses about what might happen in the future. That said, Bitcoin deserves further consideration given the massive upside that the above price targets imply. Here’s what investors need to know.
The investment thesis for Bitcoin is simple
The price of Bitcoin is based on supply and demand. However, because supply is limited to 21 million coins, demand is the biggest variable. That means Bitcoin’s future price trajectory depends on whether demand rises or falls from current levels.
Two recent developments could boost demand in the coming months and years. First, the Security and Exchange Commission (SEC) approved spot Bitcoin ETFs in January 2024. Second, the Bitcoin block subsidy was cut in half in April 2024.
Spot Bitcoin ETFs can bring institutional investors into the market
Spot Bitcoin ETFs offer investors direct exposure to Bitcoin through their investment accounts, meaning they don’t have to create new accounts at cryptocurrency exchanges. Additionally, although spot Bitcoin ETFs charge annual fees, expressed as an expense ratio, these are often lower than the transaction fees charged by cryptocurrency exchanges.
In short, spot Bitcoin ETFs reduce friction for both retail and institutional investors. When I say institutional investors, I mean professional money managers such as family offices, endowments, hedge funds, insurance companies and investment banks. According to PwC, institutional assets under management (AUM) are expected to reach $145 trillion by 2025. If even a small portion of that total were allocated to Bitcoin, the cryptocurrency’s price could rise significantly.
As mentioned, Ark Invest believes that spot Bitcoin ETFs will eventually capture just over 5% of institutional assets under management, implying roughly $8 trillion (based on PwC’s estimate). As for context, we’re nowhere near that figure at this point. Spot Bitcoin ETFs have approximately $57 billion in assets under management, and most of that money comes from retail investors.
However, US regulators only approved spot Bitcoin ETFs in January, and the early results are undoubtedly encouraging. The iShares Bitcoin Trust (NASDAQ: IBIT) Through Black rock and the Wise Origin Bitcoin Trust (NYSEMKT: FBTC) by Fidelity have collected more assets in their first 50 days on the market than any other ETF in history, according to Bloomberg’s Eric Balchunas.
Additionally, Form 13Fs filed for the first quarter of 2024 show that a few hundred institutional investors purchased small positions in various spot Bitcoin ETFs. That includes banks such as JPMorgan Chase, American bankAnd Wells Fargoas well as highly profitable hedge funds such as Citadel, DE Shaw and Millennium Management.
Halving Bitcoin block subsidies should reduce selling pressure from miners
Bitcoin miners make money through block subsidies and transaction fees, collectively called block rewards. Block grants, which represent newly minted Bitcoin, are halved every time 210,000 blocks (groups of transactions) are validated and added to the blockchain, which happens about once every four years.
The most recent halving took place in April 2024, when the block grant dropped from 6.25 BTC to 3.125 BTC. That was the fourth halving since Bitcoin was created, and the implied reduction in selling pressure – miners will have less Bitcoin to sell over the next four years – bodes well for investors, as it equates to an increase in demand.
Bitcoin has indeed experienced a significant price increase following previous halving events.
|
Halving event |
Bitcoin return (2 years later) |
|---|---|
|
November 2012 |
2,964% |
|
July 2016 |
922% |
|
May 2020 |
348% |
Data source: Fidelity Digital Assets.
Is Bitcoin a good investment?
Investors who are comfortable with risk and volatility should consider buying a small position in Bitcoin today, provided they have the right mindset. Cryptocurrency prices can rise and fall quickly, sometimes for seemingly nonsensical reasons, so investors should be prepared to hold their Bitcoin for a long period of time through ups and downs.
Furthermore, there is no guarantee that Bitcoin will ever reach the previously mentioned price targets. For that reason, Bitcoin is best seen as part of a diversified portfolio.
Should you invest $1,000 in Bitcoin now?
Consider the following before buying shares of Bitcoin:
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennevine has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, JPMorgan Chase, and US Bancorp. The Motley Fool has a disclosure policy.
1 Top Cryptocurrency to Buy Before It Surges from 635% to 5,480%, According to Select Wall Street Analysts, originally published by The Motley Fool
