Fundstrat analyst Tom Lee recently told CNBC that he expects this Bitcoin(CRYPTO: BTC) to end the current year “well above $100,000.” Although somewhat vague, this forecast implies an upside of at least 5% in December from the current price of $95,000.
Last week, Lee made an increasingly bold prediction: Bitcoin could surpass $250,000 within 12 months, partly due to the adoption of spot Bitcoin ETFs like the iShares Bitcoin Trust(NASDAQ: IBIT). That prediction implies a 160% increase in the cryptocurrency, and an equivalent increase in the index fund.
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Here’s what investors need to know.
Tom Lee is bullish on Bitcoin for four reasons: the Federal Reserve is cutting interest rates, spot Bitcoin ETFs are boosting demand, halving events are reducing new supply, and the incoming Trump administration could designate Bitcoin as a strategic reserve.
Interest rate reductions: The Federal Reserve began cutting rates in September 2024, ending the most aggressive rate hike cycle in decades. That bodes well for Bitcoin and other risky assets, as investors often feel comfortable taking on more risk as the cost of borrowing falls.
Discover Bitcoin ETFs: The SEC earlier this year approved spot Bitcoin ETFs, funds that could unlock substantial demand. They let investors add Bitcoin exposure to existing brokerage accounts, eliminating the hassle and high fees associated with cryptocurrency exchanges. Importantly, while spot Bitcoin ETFs are still a relatively new asset class, their market debut is being hailed as the most successful ETF launch of all time.
Of particular interest is the rapid pace at which institutional investors are purchasing the funds. “Bitcoin ETFs are being adopted by institutions at the fastest pace of any ETF in history,” said Matt Hougan, chief investment officer at Bitwise. Institutional investors have about $120 trillion in assets under management, so demand from that corner of the market could have a profound impact on Bitcoin’s price.
Importantly, the iShares Bitcoin Trust has been the most successful of the 11 spot Bitcoin ETFs approved by the SEC. It reached $10 billion in assets faster than any ETF in history, and it currently accounts for about half of all assets invested in spot Bitcoin ETFs.
Bitcoin halving: Bitcoin miners earn block subsidies for validating transactions, but the payout is reduced by 50% (halved) every 210,000 blocks. These events limit Bitcoin supply to 21 million coins, and each halving limits selling pressure by reducing the amount of newly minted Bitcoin paid out to miners.
The most recent halving occurred on April 19, 2024, when Bitcoin traded for around $64,000. But the cryptocurrency has historically posted huge gains over the next 12 to 18 months. For example, the peak price change between the third and fourth halvings was more than 700%.
Bitcoin strategic reserve: President-elect Donald Trump has proposed making Bitcoin a reserve asset, and Senator Cynthia Lummis (R-Wyo.) has introduced relevant legislation, the Bitcoin Act of 2024. That bill could boost demand in two ways: It would boost the positioning the government as a Bitcoin buyer, and it would further legitimize the cryptocurrency among institutional investors.
Tom Lee makes a compelling case for why Bitcoin could surpass $100,000 by 2024 and $250,000 by 2025. Like any asset, Bitcoin’s price is a product of supply and demand. Interest rate cuts, spot Bitcoin ETFs, and the creation of a strategic Bitcoin reserve would all boost demand, while periodic halving events limit supply. That could certainly boost the cryptocurrency (and spot Bitcoin ETFs) higher.
However, investors should remember that Bitcoin has historically been a volatile asset. It has fallen more than 50% from record highs three times in the past five years, and more than 75% once. Similar volatility is virtually guaranteed in the future. So anyone who isn’t comfortable with that idea should avoid Bitcoin and spot Bitcoin ETFs.
Alternatively, investors who can handle sharp declines may consider purchasing a position in the iShares Bitcoin Trust. The index fund is issued by BlackRockthe largest asset manager in the world. And it has a reasonable expense ratio of 0.25%, meaning investors pay just $2.50 per year for every $1,000 invested in the fund.
As a final warning, there is no guarantee that Bitcoin will get close to $250,000 next year. But the iShares Bitcoin Trust is still a brilliant way for risk-tolerant investors to diversify their portfolios at a time when many stocks are expensive by historical standards.
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Trevor Jennevine has no positions in any of the stocks mentioned. The Motley Fool holds and recommends positions in Bitcoin. The Motley Fool has a disclosure policy.
The First Brilliant Index Fund to Buy Before It Surges 160% in 2025, According to a Wall Street Analyst, originally published by The Motley Fool
