Bitcoin (BTC 4.23%) briefly hit a record high above $73,000 earlier this year, but its price has since slipped more than 20% to $57,000. That backslide has been driven by concerns about selling pressure and economic uncertainty, particularly with respect to interest rates.
Mt. Gox, a cryptocurrency exchange that went bankrupt in 2014 after losing up to 950,000 Bitcoin, recently began repaying customers. The market is worried creditors will immediately sell the coins once in their possession. The German government has also been trimming its position in Bitcoin, adding to concerns about selling pressure.
Meanwhile, stubborn inflation has prevented the Federal Reserve from cutting interest rates in 2024. Risk assets, like Bitcoin, tend to perform better in low-interest-rate environments, so still-elevated rates have dragged on the cryptocurrency, especially because investors entered the year expecting several cuts.
However, certain Wall Street analysts still see substantial upside for patient Bitcoin holders.
- Gautam Chhugani at Bernstein believes Bitcoin could reach $1 million by 2033 as spot Bitcoin exchange-traded funds (ETFs) bring more institutional investors to the market. That forecast implies more than 1,650% from its current price.
- Cathie Wood at Ark Invest says Bitcoin could reach $3.8 million by 2030 if institutional investors “allocate a little more than 5% of their portfolios to Bitcoin.” That forecast implies more than 6,560% upside from its current price.
Is Bitcoin a worthwhile investment?
Spot Bitcoin ETFs could be a significant source of demand
Like any asset, Bitcoin prices are governed by supply and demand. But the supply of Bitcoin is limited to 21 million coins, a feature defined by its source code, such that demand is the most consequential variable. Gautam Chhugani and Cathie Wood see spot Bitcoin ETFs as a potential source of significant demand.
To understand why, consider the complexities associated with purchasing Bitcoin. Until recently, investors needed a dedicated account with a cryptocurrency exchange and typically had to pay exorbitant fees for each transaction. Spot Bitcoin ETFs eliminate those sources of friction. Investors can now add Bitcoin exposure to existing brokerage accounts, and many spot Bitcoin ETFs carry relatively low expense ratios.
Ark Invest enumerated the benefits of spot Bitcoin ETFs in a recent newsletter.
“First, a spot ETF provides a direct way for institutional and retail investors to gain exposure to Bitcoin without dealing with the complexities of self-custody and other onboarding requirements. Second, spot ETFs legitimize Bitcoin as an institutional asset, which should catalyze Bitcoin’s acceptance and integration into traditional financial systems. Finally, spot ETFs should increase Bitcoin’s liquidity and trading volumes significantly.”
Chhugani and Wood see institutional adoption of Bitcoin as critical to the bull case. Professional money managers, like investment banks and hedge funds, will have $145 trillion in assets under management by 2025, according to consultancy PwC. Should they contribute even a fraction of those assets to Bitcoin, its price could soar. Indeed, Wood thinks institutional investors will ultimately allocate a little more than 5% of their portfolios to Bitcoin, pushing its price toward $3.8 million.
The first U.S. spot Bitcoin ETFs were approved in January, so the asset class is too new to draw definitive conclusions, but the unprecedented rate of adoption is encouraging. The iShares Bitcoin Trust (IBIT 0.46%) and the Wise Origin Bitcoin Trust (FBTC 0.48%) accumulated more assets in their first 50 trading days than any other ETFs in history, according to Bloomberg. Shortly thereafter, the iShares Bitcoin Trust reached $10 billion in assets at the fastest pace on record, according to The Wall Street Journal.
Perhaps most encouraging, more than 600 financial institutions reported owning spot Bitcoin ETFs in Forms 13F filed with the Securities and Exchange Commission (SEC) for the first quarter. That number includes major investment banks like JPMorgan Chase, Morgan Stanley, and Wells Fargo, and leading hedge funds like Millennium Management and Citadel Advisors.
Bitcoin is a risky asset due to its volatility and limited track record
Exploring price targets is exciting, but investors should never take the implied gains for granted. No one knows what Bitcoin will be worth tomorrow, let alone several years down the road.
Investors should bear in mind that Bitcoin is a risky asset. It has frequently fallen more than 20% in a period of days and declined 75% during the most recent cryptocurrency market crash that began in November 2021. Similar drawdowns are all but guaranteed in the future.
Additionally, Bitcoin has a limited track record, compared to stocks. The S&P 500 has been around for the better part of a century, and the Dow Jones Industrial Average has existed in one form or another for more than a century. But Bitcoin came into existence in 2009, so it’s difficult to guess how it will respond to various macroeconomic pressures.
Patient investors comfortable with those risks should consider buying a small position in Bitcoin today. I believe Bitcoin will be worth substantially more in the future, but there’s a very good chance it will be worth substantially less between now and then.
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 and JPMorgan Chase. The Motley Fool has a disclosure policy.