News
1 Hot Cryptocurrency to Buy Before It Rises 2,100%, According to Cathie Wood’s Ark Invest
Cathie Wood is managing director and chief investment officer of Ark Invest, an asset management firm focused on disruptive technologies such as blockchain and cryptocurrency.
Wood and his team see substantial upside in the cryptocurrency market, driven by innovations in smart contracts and decentralized finance. But Ark is particularly optimistic about it Bitcoin (CRYPTO: BTC). His bullish valuation model values Bitcoin at $1.48 million by 2030, implying an upside of more than 2,000% from its current price of nearly $71,000.
Ark clearly sees Bitcoin as an asset worth buying. But investors should understand the investment thesis and potential risks before making any decisions.
The investment thesis for Bitcoin
The investment thesis for Bitcoin is simple. Like any good, its price is a product of supply and demand. Bitcoin is a bit atypical because its supply is limited to 21 million coins due to periodic reductions in mining rewards known as halvings. To elaborate, miners receive Bitcoin when they add blocks of valid transactions to the blockchain, but the reward is halved after every 210,000 blocks.
As a caveat, the bid cap is theoretically subject to change, but the chances of this happening are slim to non-existent. It would require consensus among those who operate the nodes, the computers that run the Bitcoin software. But these network participants would have no reason to approve such a change because an increase in supply would devalue the cryptocurrency.
For this reason, we can assume that demand will remain the most important variable when it comes to Bitcoin. This means that greater demand will cause the price to rise, while less demand will cause the price to fall. Right now, demand appears to be trending upward. According to Fidelity, the number of wallet addresses holding at least $1,000 in Bitcoin reached a new all-time high at the end of December 2023.
However, demand would need to increase substantially for a single Bitcoin to reach $1.48 million by 2030. At that point, Wood’s Ark Invest outlined several sources of potential demand that support its valuation model.
Ark Invest’s valuation model for Bitcoin
Ark Invest released a Bitcoin valuation model in 2023 that assumes three price trajectories the cryptocurrency could follow through the end of the decade. These trajectories (and the implied upside from the current price of $63,000) are:
-
Bear Case: $258,500 (360% increase)
-
Base case: $682,800 (960% increase)
-
Bull case: $1.48 million (up 2,100%)
In the report, Ark highlighted eight sources of demand that could push Bitcoin higher, but four sources (Bitcoin as a corporate treasury asset, nation-state treasury asset, remittance asset, and economic settlement asset) have minimal impact (if not zero). on price trajectories. Instead, Ark attributes the vast majority of potential earnings to four sources of demand:
The story continues
-
Emerging Market Currencies: Ark believes that Bitcoin will represent 0.5% (bear) to 10% (bull) of the currency in emerging markets by 2030. An emerging market is a country experiencing strong economic growth, but which does not yet possess all the qualities of a country developed.
-
High Net Worth Individuals: Ark believes that Bitcoin will represent between 1% (bear) and 5% (bull) of assets held by high-net-worth individuals (HNWIs) by 2030. The term HNWI generally refers to individuals with assets of at least 1 million dollars.
-
Institutional investors: Ark believes Bitcoin will account for 1% (bear) to 6.5% (bull) of institutional assets by 2030. Institutional assets refer to money invested by financial advisors, endowments, hedge funds, and other financial institutions.
-
Gold: Ark believes Bitcoin will capture 20% (downside) to 50% (upside) of the liquidity that retail investors would otherwise have allocated to gold by 2030.
Bitcoin has yet to meet any of the bearish conditions, let alone bullish conditions, but it is moving in the bullish direction. In December, Forbes reported that “Bitcoin has gained increasing importance in emerging and developing economies, especially in areas where traditional financial systems are inadequate or inaccessible.”
Additionally, a 2023 survey by consulting firm Ernst & Young found that “all segments of institutional investors expect to increase investments in digital assets and/or related products over the next two to three years.” And Paul Maley, global head of securities services at German bankhe recently told Reuters that Bitcoin “is set to be seen as a top priority for investors and businesses” as the cryptocurrency market expands.
With this in mind, the recently approved Bitcoin spot exchange traded funds (ETFs) could help unlock demand among HNWIs, retail investors and institutional money managers. These Bitcoin ETFs provide direct exposure to the cryptocurrency without the hassle of specialized exchanges or blockchain wallets. In fact, Wood recently told CNBC that the spot approval of the Bitcoin ETF makes her more confident in the bullish price trajectory.
Bitcoin could be a worthwhile investment, but avoid anchoring to price targets
Wood isn’t the only one considering a price target above $1 million. Jurrien Timmer, global macro director at Fidelity, believes Bitcoin could reach $1.2 million by 2030 if its adoption rate mirrors that of mobile phones. She also proposed, however, a less aggressive model that shows Bitcoin will reach $343,000 by 2030 if its adoption rate mirrors that of the Internet.
The lesson for investors is not to fixate on a particular valuation model. Decisions should be made based on known facts. Specifically, Bitcoin has returned 1,540% over the past five years, a sensational figure that easily outperforms all other major asset classes. Additionally, any investor who has purchased and held Bitcoin for at least five years has made money, regardless of when he or she made the initial purchase. However, Bitcoin has fallen more than 50% from its record high on three separate occasions over the past five years, and similar volatility is likely in the future.
In short, Bitcoin is a volatile asset best suited to risk-taking investors with a long-term time horizon. Anyone who meets those conditions should consider purchasing a small position today.
Should You Invest $1,000 in Bitcoin Right Now?
Before you buy Bitcoin stocks, consider this:
The analyst team at Motley Fool Stock Advisor has just identified what they believe is the 10 best stocks for investors to buy now… and Bitcoin was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow model of success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks every month. The stock advisory service has more than tripled the return of the S&P 500 Index since 2002*.
*Equity advisor will return starting March 25, 2024
Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.
1 Hot Cryptocurrency to Buy Before It Rises 2,100%, According to Cathie Wood’s Ark Invest was originally published by The Motley Fool