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The first cryptocurrency to buy now: it could increase by 614%, according to a Wall Street analyst
The cryptocurrency market has seen a strong recovery over the past year thanks to signs of economic resilience. Inflation has cooled, recession fears have receded and the Federal Reserve expects some interest rate cuts this year. Low rate environments have historically been a good thing for cryptocurrencies, so investors have returned to the market.
Another reason for the bullish momentum is the excitement surrounding spot Exchange Traded Funds (ETFs). Bitcoin (CRYPTO: BTC) e Ethereum. These vehicles track (or would track) the price of the underlying cryptocurrency. Bitcoin spot ETFs were approved in January, and while many analysts believe Ethereum spot ETFs will be rejected initially, they anticipate approval eventually.
Finally, investors are excited about the halving of Bitcoin mining rewards scheduled for this month. It will be the fourth halving since Bitcoin was created in 2009, and the last three halvings have led to significant price appreciation. Investors are undoubtedly hoping for the same outcome this time too.
Against this backdrop, Bitcoin is up 136% over the past year, but some Wall Street analysts see the cryptocurrency moving much higher during this market cycle. For example, Tom Lee, managing partner and head of research at Fundstrat Global Advisors, believes Bitcoin could reach $150,000 by the end of 2024 and $500,000 within five years. Bitcoin is currently worth $70,000, so the implied upside is 114% this year and 614% by 2029.
Here’s what investors should know.
Tom Lee has a winning track record
Lee rationalized his bullish call Bitcoin during a recent interview on CNBC. “Demand is improving with the [spot Bitcoin] ETFs, supply reduces with the halving, and if monetary policy loosens, which we expect, you know that will be supportive of risky assets,” he said in February.
Lee is no stranger to bold predictions. For example, he also told CNBC that the Russell 2000 it could rise 45% this year. The Russell 2000 is a benchmark for small capitalization stocks, and Lee believes the index is undervalued relative to large-cap companies S&P500. Of course, investors should always view forecasts with skepticism, but Lee has a reasonably good track record.
He predicted the S&P 500 will rise 24% to reach 4,800 in 2023 as the Federal Reserve eases interest rate hikes. Here, the index closed the year at 4,770. Better yet, Lee’s stock selection product (Granny Shots) has more than doubled the performance of the S&P 500 since its launch in January 2019. This is impressive because only 21% of large-cap funds have beaten the S&P 500 over the past five years . .
The story continues
I mention these results not to imply that Lee is right about Bitcoin, but rather to point out that his prediction is worth considering. So, let’s talk about the catalysts that he believes could take the cryptocurrency to $500,000 in the next five years: Spot Bitcoin ETFs and halving mining rewards.
The first catalyst: the approval of spot Bitcoin ETFs
Like any asset, Bitcoin prices are determined by supply and demand. However, Bitcoin is a bit of a special case because its supply is limited to 21 million coins. This supply limit makes cryptocurrency valuable in the same way that scarcity makes precious metals valuable. But scarcity is irrelevant without demand.
With this in mind, various signs currently indicate that demand for Bitcoin is increasing. Long-term holders were net buyers in the fourth quarter. Monthly active addresses, new addresses and transaction counts have been trending upward. And the number of accounts with at least 0.1 BTC reached a new all-time high in December 2023, according to Fidelity.
In the future, spot Bitcoin ETFs could accelerate demand because they offer direct exposure to the cryptocurrency without the friction of specialized exchanges and blockchain wallets. Additionally, many of the largest asset managers participate as issuers, including the No. 1 Black rock and No. 3 Fidelity: Some analysts believe institutional investors will have greater interest in Bitcoin.
The first Bitcoin spot ETFs were approved by the US Securities and Exchange Commission (SEC) in January 2024 and the launch was an absolute success. In particular, that of BlackRock iShares Bitcoin ETF became the fastest company to reach $10 billion in assets, according to the Wall Street Journal. This trend could certainly continue in the future, especially after institutional investors have had time to study the market.
The second catalyst: the halving of Bitcoin mining rewards
The April 2024 halving event is the next catalyst on the horizon. Halving events enforce the 21 million coin cap through scheduled mining reward reductions. Miners receive Bitcoin when they successfully validate blocks of transactions, but the payout is reduced by 50% every time 210,000 blocks are added to the blockchain. This happens about once every four years.
Halving events ease selling pressure, simply because miners have less Bitcoin to sell. As a result, Bitcoin has become much more valuable following all three previous halvings, which occurred in 2012, 2016, and 2020. Its price increased by 5,300% between the first and second halvings and by 1,200% between the second and the third halving. Bitcoin has returned 715% since the third halving event.
Investors should never anchor themselves to price targets
Lee’s prediction is well-founded and Bitcoin could certainly be worth more (perhaps much more) in the future. However, investors should never fixate on specific price targets. Forecasts are inherently unreliable, even when based on decades of data. But Bitcoin has only been around for about 15 years, so predictions regarding the cryptocurrency are particularly questionable.
Additionally, investors should remember that Bitcoin has historically been a very volatile asset. For example, its price collapsed by 76% between November 2021 and November 2022. Similar volatility should be expected in the future.
The bottom line is this: There is no guarantee that Bitcoin will approach $500,000 in the next five years, but it has created considerable wealth in the past and could create even more wealth in the future. Patient investors who are comfortable with extreme risk and volatility should purchase a small position in Bitcoin today.
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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
The first cryptocurrency to buy now: it could increase by 614%, according to a Wall Street analyst was originally published by The Motley Fool