About two years ago, Ark Invest’s Cathie Wood famously predicted: Bitcoin(Cryptocurrency: BTC) By 2030, the price of Bitcoin will reach $1 million. The outlook for the crypto winter of 2022 is uncertain at best.
In a recent interview with Bloomberg, Wood reiterated that Bitcoin will reach $1 million by 2030. Why is Wood so bullish on Bitcoin?
Wood said the main factor driving Bitcoin’s price surge is its inherent scarcity. According to the Bitcoin algorithm, the total supply limit in its life cycle is 21 million coins, and 19.8 million coins are currently in circulation.
At this point, Bitcoin is even scarcer than gold, Wood said. Bitcoin’s supply is tightly controlled by its algorithm, and its production cannot be increased like gold.
Limited supply is important because demand for Bitcoin is rising. Everyone is suddenly racing to own Bitcoin, and given that Bitcoin’s supply is relatively fixed, this demand will help drive up Bitcoin’s price.
To arrive at her original $1 million price prediction for Bitcoin, Wood deployed a building block model to estimate its future price. According to Ark Invest, several different components are driving Bitcoin demand.
One component of this is demand from institutional investors, who are choosing to allocate more of their portfolios to Bitcoin. Now that spot Bitcoin ETFs are available to investors, institutional investors have a useful tool to calibrate their precise exposure to Bitcoin. In her original model, she used a base case allocation of 2.5% for Bitcoin. She said that in a best-case scenario, institutional investors might choose to allocate 6.5% of their portfolios to Bitcoin.
Another component is the growing demand for Bitcoin as a long-term store of value. Until recently, the idea of replacing physical gold with “digital gold” (i.e., Bitcoin) hadn’t really taken off. But now, more and more investors are embracing the idea of Bitcoin as a hedge against inflation.
Image source: Getty Images.
Another component is what Wood calls “national treasury,” demand from central banks and sovereign governments. Around the world, nation-states are considering holding Bitcoin as a reserve asset.
The most recent example is President-elect Donald Trump’s campaign promise to establish a strategic Bitcoin reserve for the United States. According to the current outline of the plan, the U.S. government will commit to purchasing 1 million Bitcoins within five years, with a recommended holding period of 20 years. Momentum for government ownership of Bitcoin continues to grow as several U.S. states — including Texas, Florida and Pennsylvania — have also said they will establish their own strategic reserves of Bitcoin.
In short, a price of $1 million for Bitcoin would mean a future market capitalization of over $20 trillion. This easily makes Bitcoin the most valuable digital asset in the world. This means Bitcoin’s valuation is significantly higher than any tech stock. Currently, the most valuable tech stocks in the world are applevalued at US$3.7 trillion.
Bitcoin still has a lot to do before it reaches a market cap of $20 trillion. As we saw with Bitcoin’s recent pullback from the $100,000 price level, even the faintest hint of concern from the Fed can be enough to cause a pullback in Bitcoin prices. Plus, given that it’s unclear how Trump will deliver on his pledge to support cryptocurrencies, you can understand why some investors remain skeptical of Bitcoin.
But here’s the thing: It’s impossible to ignore the growing demand for Bitcoin from retail investors, institutional investors, businesses, and governments. Here’s why I remain bullish on Bitcoin’s long-term trajectory. There’s too much demand and too little supply, which should drive up prices in the long run.
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Dominic Basulto holds a position in Bitcoin. The Motley Fool holds and recommends Apple and Bitcoin. The Motley Fool has a disclosure policy.
Cathie Wood just doubled down on her $1 million price prediction for Bitcoin. Is she right? Originally published by The Motley Fool
