1 Red-Hot Cryptocurrency to Buy Before It Soars 2,100%, According to Cathie Wood's Ark Invest

Cathie Wood is the chief executive and chief investment officer at Ark Invest, an asset management company focused on disruptive technologies like blockchain and cryptocurrency.

Wood and her team see substantial upside across the cryptocurrency market, driven by innovations in smart contracts and decentralized finance. But Ark is particularly optimistic about Bitcoin (BTC 5.06%). Its bull-case valuation model prices Bitcoin at $1.48 million by 2030, implying more than 2,000% upside from its current price of almost $71,000.

Ark clearly sees Bitcoin as an asset worth buying. But investors should understand the investment thesis and the potential risks before making any decisions.

The investment thesis for Bitcoin

The investment thesis for Bitcoin is simple. Like any asset, its price is a product of supply and demand. Bitcoin is somewhat atypical because its supply is capped at 21 million coins due to the periodic reduction of mining rewards known as halvings. To elaborate, miners are awarded Bitcoin when they add blocks of valid transactions to the blockchain, but the reward is cut in half after every 210,000 blocks.

As a caveat, the supply limit is theoretically subject to change, but the odds of that are slim to nonexistent. It would require a consensus among those who operate the nodes, the computers that run the Bitcoin software. But those network participants would have no reason to approve such a change because increasing the supply would devalue the cryptocurrency.

For that reason, we can assume demand will remain the most consequential variable where Bitcoin is concerned. That means more demand will move its price higher, and less demand will move its price lower. Right now, demand seems to be trending upward. The number of wallet addresses holding at least $1,000 in Bitcoin reached a new all-time high in late December 2023, according to Fidelity.

However, demand would need to increase substantially for a single Bitcoin to reach $1.48 million by 2030. To 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 published a Bitcoin valuation model in 2023 that posits three price trajectories the cryptocurrency may follow through the end of the decade. Those trajectories (and the implied upside from the current price of $63,000) are:

  • Bear case: $258,500 (360% upside)
  • Base case: $682,800 (960% upside)
  • Bull case: $1.48 million (2,100% upside)

In the report, Ark highlighted eight sources of demand that could drive Bitcoin higher, but four sources — Bitcoin as a corporate treasury asset, nation state treasury asset, remittance asset, and economic settlement asset — have very little impact (if any) on the price trajectories. Instead, Ark ascribes the vast majority of the potential gains to the four sources of demand:

  • Emerging market currencies: Ark believes Bitcoin will account for 0.5% (bear) to 10% (bull) of currency in emerging markets by 2030. An emerging market is a country undergoing robust economic growth, but that does not yet possess all the qualities of a developed country.
  • High-net-worth individuals: Ark believes Bitcoin will account for 1% (bear) to 5% (bull) of assets held by high-net-worth individuals (HNWIs) by 2030. The term HNWI generally refers to people with liquid assets of at least $1 million.
  • Institutional investors: Ark believes Bitcoin will account for 1% (bear) to 6.5% (bull) of institutional assets by 2030. Institutional assets refers to money invested by financial advisors, endowments, hedge funds, and other financial institutions.
  • Gold: Ark believes Bitcoin will capture 20% (bear) to 50% (bull) of the cash retail investors would have otherwise allocated to gold by 2030.

Bitcoin has yet to satisfy any of the bear-case conditions, let alone the bull-case conditions, but it’s moving in the bull direction. In December, Forbes reported that “Bitcoin has gained increasing prominence in emerging and developing economies, especially in areas where traditional financial systems are inadequate or inaccessible.”

Additionally, a 2023 survey from consulting firm Ernst & Young found that “all institutional investor segments anticipate ramping up investments in digital assets and/or related products over the next two to three years.” And Paul Maley, global head of securities services at Deutsche Bank, recently told Reuters that Bitcoin was “bound to be seen as one of the priorities for investors and companies” as the cryptocurrency market expands.

With that in mind, recently approved spot Bitcoin 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. Indeed, Wood recently told CNBC that spot Bitcoin ETF approval makes her more confident in the bull-case price trajectory.

Bitcoin could be a worthwhile investment, but avoid anchoring to price targets

Wood is not the only one to consider a price target of more than $1 million. Jurrien Timmer, director of global macro at Fidelity, believes Bitcoin could reach $1.2 million by 2030 if its rate of adoption mirrors that of mobile phones. He also proposed, however, a less aggressive model that shows Bitcoin reaching $343,000 by 2030 if its rate of adoption mirrors that of the internet.

The lesson for investors is not to fixate on any particular valuation model. Decisions should be made based on known facts. Specifically, Bitcoin returned 1,540% during the last five years, a sensational figure that easily tops every other major asset class. Moreover, any investor who bought and held Bitcoin for at least five years has made money, regardless of when they made their initial purchase. However, Bitcoin has also fallen more than 50% from a record high on three separate occasions during the past five years, and similar volatility is probable in the future.

In short, Bitcoin is a volatile asset best suited to risk-tolerant investors with a long time horizon. Anyone who satisfies those conditions should consider buying a small position today.

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