Cathie Wood of Ark Invest continues to ratchet up her price forecasts for Bitcoin (BTC -3.39%). At the recent Bitcoin Investor Day event in New York City, Wood boosted her 2030 Bitcoin price forecast to $3.8 million from an already lofty figure of $1.5 million. Given today's price in the neighborhood of $70,000, that would be an eye-popping gain of about 5,300% within just six years.
On the face of it, the prediction sounds outlandish. However, there are two key catalysts that could eventually make it a reality.
Institutional adoption
The primary factor pushing Bitcoin to previously unthinkable heights is stronger than expected institutional adoption. Quite simply, large institutional investors are waking up to the idea of Bitcoin as a stand-alone asset class worthy of inclusion in their portfolios. With the launch of the new spot Bitcoin exchange-traded funds (ETFs), they now have a regulated way to invest in Bitcoin without having to participate directly in the crypto market.
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The investor flows into the new spot Bitcoin ETFs since January have been nothing short of breathtaking. The top two spot Bitcoin ETFs have together accumulated more than $25 billion in customer assets in just over two months. And the new Ark 21Shares Bitcoin ETF (ARKB -3.20%) hasn't done too shabbily, either, with nearly $3 billion in assets under management. Granted, some of this money is coming from small retail investors, but the lion's share is coming from institutional investors.
The big question, of course, is just what fraction of their assets these institutional investors will choose to allocate to Bitcoin over time. Right now, the prudent allocation range is viewed as 1% to 3%. But Wood thinks that this allocation will eventually rise to well over 5%. That percentage would be high enough, she asserts, to push Bitcoin past the $1.5 million mark.
Bitcoin as a financial superhighway?
For Bitcoin to hit its full potential, though, something more is needed. From my perspective, it's highly unlikely Bitcoin can get to $3.8 million if people are just hoarding it and holding on for dear life. People actually need to be doing something with their Bitcoin. In crypto lingo, Bitcoin needs to have some sort of utility.
That's why Ark Invest has consistently focused on all of the potential use cases for Bitcoin. From a macro perspective, growth in these use cases will drive greater demand for Bitcoin, which should buoy its price. In Ark Invest's "Big Ideas 2023" report, the investment firm outlined eight key use cases for Bitcoin, projected their growth potential, and then aggregated the market size of each for the year 2030. That's how Ark Invest arrived at its $1.5 million price target for Bitcoin.
Rapid price appreciation can only happen, says Wood, if Bitcoin becomes a "financial superhighway" for the world's banking and financial system. The construction of such a financial superhighway would be of particular importance, says Wood, to emerging market nations. So you can imagine a Bitcoin superhighway traversing Latin America or connecting the nations of sub-Saharan Africa.
While this sounds inspiring, just how realistic is this scenario? After all, Bitcoin remains a relatively slow, proof-of-work blockchain that was never designed to handle smart contracts. It's not as fast as other blockchains, not as energy-efficient as other blockchains, and not as flexible or scalable as other blockchains. And that's why all the use cases that were originally projected for Bitcoin -- such as the scenario that one day we'd all be paying for everything we buy with Bitcoin -- have not come true.
From my perspective, it would be much better to build a financial superhighway using a super-fast, super-cheap blockchain such as Solana (SOL -4.56%). Even Cardano (ADA -4.62%) might be a better choice, especially given the inroads it has made in sub-Saharan Africa. So I'm not quite as ready to embrace this financial superhighway view of Bitcoin as I was to embrace former Vice President Al Gore's "information superhighway" view of the internet.
How realistic is a $3.8 million price?
The ability of Bitcoin to hit a $3.8 million price target depends on whether it can continue to deliver historically high returns to investors. Working backward, and doing just a few back-of-the-envelope calculations, Bitcoin would have to deliver annualized returns of just over 100% to hit a $3.8 million price by 2030.
Granted, Bitcoin has done this before. Over the 10-year period from 2001-2011, Bitcoin delivered annualized returns of 230%, making it the top-performing asset in the world. And just last year, Bitcoin turned in a blistering performance of 150%. So I'm not saying that Bitcoin can't return 100% per year.
But, at some point, you have to tamp down your expectations and cut through some of the current Bitcoin ETF euphoria. While I remain highly bullish on Bitcoin's prospects, I'm also concerned that some of these price predictions are getting ratcheted up too high, too quickly.
Dominic Basulto has positions in Bitcoin and Cardano. The Motley Fool has positions in and recommends Bitcoin, Cardano, and Solana. The Motley Fool has a disclosure policy.
