Risk assets usually perform better when interest rates are low. So speculation that stubborn inflation will cause Federal Reserve policymakers to reduce rates more slowly than anticipated has been a headwind for cryptocurrencies in recent weeks.
Indeed, while Bitcoin (CRYPTO: BTC) rallied to 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 for patient investors.
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Tom Lee, managing partner and Head of Research at Fundstrat Global Advisors, believes 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. That last figure implies 635% upside from its current price of $68,000.
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Anthony Scaramucci, founder and managing partner at SkyBridge Capital, recently told CNBC spot Bitcoin ETFs could propel the cryptocurrency past the market capitalization of gold, which is currently about $16 trillion. In that scenario, a single Bitcoin would be worth about $800,000, implying about 1,075% upside from its current price.
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Cathie Wood, CEO and CIO at Ark Invest, believes spot Bitcoin ETFs will eventually capture about 5% of institutional assets under management, pushing the price of a single Bitcoin to $3.8 million. That estimate implies about 5,480% upside from its current price.
As a caveat, investors should never put too much confidence in price targets. They are simply educated guesses about what might happen in the future. That said, Bitcoin warrants further consideration given the tremendous upside 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, because supply is limited to 21 million coins, demand is the most consequential variable. That means the future price trajectory of Bitcoin depends on whether demand increases or decreases from its current level.
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 could bring institutional investors to the market
Spot Bitcoin ETFs provide investors with direct Bitcoin exposure through their brokerage accounts, meaning they do not need to create new accounts with cryptocurrency exchanges. Additionally, while 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 investors and institutional investors. When I say institutional investors, I am referring to professional money managers like family offices, endowments, hedge funds, insurance companies, and investment banks. Institutional assets under management (AUM) are forecasted to reach $145 trillion by 2025, according to PwC. If even a small fraction of that total was allocated to Bitcoin, the cryptocurrency’s price could rise substantially.
As mentioned, Ark Invest believes spot Bitcoin ETFs will eventually capture a bit more than 5% of institutional AUM, which implies roughly $8 trillion (based on PwC’s estimate). For context, we are nowhere close to that figure at the present time. Spot Bitcoin ETFs have about $57 billion in AUM, and most of that money has come from retail investors.
However, U.S. regulators only approved spot Bitcoin ETFs in January, and the early results are undoubtedly encouraging. The iShares Bitcoin Trust (NASDAQ: IBIT) by BlackRock and the Wise Origin Bitcoin Trust (NYSEMKT: FBTC) by Fidelity accumulated more assets in their first 50 days on the market than any other ETFs in history, according to Eric Balchunas at Bloomberg.
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 like JPMorgan Chase, U.S. Bank, and Wells Fargo, as well as highly profitable hedge funds like Citadel, D.E. Shaw, and Millennium Management.
The halving of Bitcoin block subsidies should reduce selling pressure from miners
Bitcoin miners make money through block subsidies and transaction fees, collectively referred to as block rewards. Block subsidies, which represent newly minted Bitcoin, are cut in half each 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 event took place in April 2024 when the block subsidy fell from 6.25 BTC to 3.125 BTC. That was the fourth halving event 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 because it would be tantamount to an increase in demand.
Indeed, Bitcoin has experienced significant price appreciation following past 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 comfortable with risk and volatility should consider buying a small position in Bitcoin today, provided they have the correct mindset. Cryptocurrency prices can rise and fall quickly, sometimes for seemingly nonsensical reasons, so investors should be prepared to hold their Bitcoin through ups and downs over a long time period.
Additionally, there is no guarantee Bitcoin ever reaches the price targets mentioned earlier. For that reason, Bitcoin is best viewed as one component 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 Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, JPMorgan Chase, and U.S. Bancorp. The Motley Fool has a disclosure policy.
1 Top Cryptocurrency to Buy Before It Soars 635% to 5,480%, According to Certain Wall Street Analysts was originally published by The Motley Fool
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