Risky assets generally perform better when interest rates are low. So speculation that stubborn inflation would cause Federal Reserve policymakers to cut rates more slowly than expected has been a headwind for cryptocurrencies in recent weeks.
Indeed, while Bitcoin (CRYPTO:BTC) hit a new record high of $73,000 in March, its price has since slipped 7% to $68,000. However, several Wall Street analysts see substantial upside potential for patient investors.
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 grants, and the possible easing of policy monetary (lower interest rates) could push Bitcoin to $150,000 by 2025 and $500,000 by 2029. The latter figure implies a 635% upside from its current price of $68,000.
Anthony Scaramucci, founder and managing partner of SkyBridge Capital, recently told CNBC that spot Bitcoin ETFs could propel the cryptocurrency beyond the market cap of gold, which is currently around $16 trillion. dollars. In this scenario, a single Bitcoin would be worth around $800,000, implying an upside of around 1,075% from its current price.
Cathie Wood, CEO and CIO of Ark Invest, estimates that spot Bitcoin ETFs will eventually capture about 5% of institutional assets under management, pushing the price of a single Bitcoin to $3.8 million. This estimate implies an upside of approximately 5,480% from its current price.
It should be noted, however, that investors should never place too much confidence in price targets. These are simply educated guesses about what might happen in the future. That said, Bitcoin deserves a closer look given the enormous upside potential implied by the price targets above. Here’s what investors should know.
The investment thesis for Bitcoin is simple
The price of Bitcoin is based on supply and demand. However, with supply limited to 21 million coins, demand is the most important variable. This means that the future trajectory of Bitcoin prices depends on whether demand increases or decreases from its current level.
Two recent developments could boost demand in the months and years to come. 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 could bring institutional investors into the market
Spot Bitcoin ETFs provide investors with direct exposure to Bitcoin through their brokerage accounts, meaning they do not need to create new accounts on cryptocurrency exchanges. Additionally, although spot Bitcoin ETFs charge annual fees expressed as an expense ratio, they 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 talk about institutional investors, I’m referring to professional money managers like family offices, endowments, hedge funds, insurance companies, and investment banks. Institutional assets under management (AUM) are expected to reach $145 trillion by 2025, according to PwC. If even a small fraction of this total were allocated to Bitcoin, the price of the cryptocurrency could increase significantly.
As mentioned, Ark Invest estimates that spot Bitcoin ETFs will eventually capture just over 5% of institutional assets under management, implying around $8 trillion (based on PwC’s estimate). For context, we are nowhere near that number at the moment. Spot Bitcoin ETFs have around $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) by black rock and the Wise Original Bitcoin Trust (NYSEMKT:FBTC) by Fidelity accumulated more assets in its first 50 days on the market than any other ETF in history, according to Bloomberg’s Eric Balchunas.
In addition, Form 13F Filings for the first quarter of 2024 show that a few hundred institutional investors purchased small positions in various Bitcoin ETFs for spot. This includes banks like JPMorgan Chase, American BankAnd Wells Fargoas well as highly profitable hedge funds like Citadel, DE Shaw and Millennium Management.
Bitcoin Block Subsidy Halving Should Reduce Miner Selling Pressure
Bitcoin miners make money through block grants 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 approximately once every four years.
The most recent halving event took place in April 2024, when the block subsidy increased from 6.25 BTC to 3.125 BTC. This is the fourth halving event since Bitcoin’s inception, and the implied reduction in selling pressure – miners will have less Bitcoin to sell over the next four years – bodes well for investors as this would amount to an increase in demand.
Indeed, Bitcoin has seen significant price appreciation following previous halving events.
Event halved | Return of Bitcoin (2 years later) |
|---|---|
November 2012 | 2,964% |
July 2016 | 922% |
May 2020 | 348% |
Data source: Fidelity Digital Assets.
Is Bitcoin a good investment?
Investors comfortable with risk and volatility should consider purchasing a small position in Bitcoin today, provided they have the right mindset. Cryptocurrency prices can rise and fall quickly, sometimes for seemingly absurd reasons, so investors should be prepared to hold on to their Bitcoin despite ups and downs over a long period of time.
Additionally, there is no guarantee that Bitcoin will ever reach the previously mentioned price targets. For this reason, it is best to consider Bitcoin as part of a diversified portfolio.
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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 position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, JPMorgan Chase and US Bancorp. disclosure policy.
1 Top Cryptocurrencies to Buy Before They Skyrocket 635% to 5,480%, According to Some Wall Street Analysts was originally published by The Motley Fool
