The price of Bitcoin (BTC 6.25%) is based on supply and demand. However, because supply will never exceed 21 million coins, demand for the cryptocurrency is the only variable of consequence. That means the future price trajectory of Bitcoin depends entirely on whether demand increases or decreases from its current level.
With that in mind, certain Wall Street analysts believe two catalysts will boost demand for Bitcoin in the future, so much so that the cryptocurrency could soar 700% or more from its current price of about $50,000 by the end of the decade. Here’s what investors should know.
Recent developments strengthen the investment thesis for Bitcoin
A Fidelity report recently identified several signs of growing demand for Bitcoin. Monthly active addresses, monthly new addresses, and monthly transactions are all trending higher. The illiquid supply of Bitcoin (i.e., the percentage that has not moved in over a year) is near a record high and trending upward, meaning more investors are holding the cryptocurrency. And the number of accounts with at least 0.1 Bitcoin hit a record high in December 2023.
Beyond those trends, two catalysts could create more demand for Bitcoin in the future. First, the Securities and Exchange Commission recently approved several spot Bitcoin exchange-traded funds (ETFs). Those investment vehicles provide direct exposure to the cryptocurrency without the hassle of buying and storing Bitcoin. By reducing friction, spot Bitcoin ETFs could draw more retail and institutional investors into the market. Indeed, the collective inflows across spot Bitcoin ETFs during the first month of trading were higher than the inflows of any other ETF launch in history.
Second, Bitcoin mining rewards are reduced by 50% every time 210,000 blocks are added to the blockchain, which happens about once every four years. The next halving event is scheduled to take place in April and it will effectively boost demand by reducing selling pressure. To elaborate, miners sell Bitcoin to monetize their operations, but they will have 50% less Bitcoin to sell after the April halving event.
There is a historical precedent for Bitcoin increasing in value after mining rewards are cut in half, as shown in the table below.
|
Halving Event |
Bitcoin Return (2 Years Later) |
|---|---|
|
November 2012 |
2,964% |
|
July 2016 |
922% |
|
May 2020 |
348% |
Data source: Fidelity Digital Assets.
Several financial professionals have issued bullish price targets for Bitcoin
Anthony Scaramucci, founder and managing partner at Skybridge Capital, recently told podcast host Scott Melker that Bitcoin could reach $240,000 within 18 months of the April halving event. Scaramucci also said Bitcoin would eventually achieve half the market capitalization of gold, bringing its per-coin value to roughly $400,000. That implies 700% upside from its current price of $50,000.
Tom Lee, managing partner and head of research at Fundstrat Global Advisors, recently told CNBC that Bitcoin could reach $500,000 in the next five years, implying 900% upside from its current price. “There’s a finite supply and now we have a potentially huge increase in demand with spot Bitcoin [ETF] approval, so I think in five years something around half a million would be potentially achievable,” Lee said in January.
Cathie Wood, founder and chief executive officer of Ark Invest, recently discussed her Bitcoin valuation model with CNBC. Her base-case valuation is roughly $600,000 by 2030, implying 1,100% upside from its current price. But her bull-case valuation is $1.5 million by 2030, implying 2,900% upside from its current price. Wood said spot Bitcoin ETF approval makes the bull case more likely.
Investors should understand the risks before buying Bitcoin
Bitcoin could be worth more (perhaps much more) in the future. But investors cannot make informed decisions without understanding the risks.
First, historical data is limited. Bitcoin was created less than two decades ago, whereas stocks and bonds have been around for centuries. That makes speculation difficult where Bitcoin is concerned. For instance, there is no precedent for its performance during a deep recession.
Second, Bitcoin has historically been quite volatile. It has fallen at least 50% from a record high three times in the past five years, and it plunged more than 75% during the most recent cryptocurrency market crash. Investors should expect that volatility to persist in the future.
Third, Bitcoin has been associated with fraud, money laundering, and other criminal activity. Certain countries have banned the cryptocurrency and other countries are still building regulatory frameworks. Future changes in the regulatory landscape could damp demand for Bitcoin.
Patient investors comfortable with those risks should consider buying Bitcoin today.
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