bitcoin (CRYPT: BTC) has been on fire in recent months. The cryptocurrency has soared 60% since the start of 2024 as investors have returned to risk assets amid signs of a strong economy. Bitcoin is currently trading at around $70,000 and has a market capitalization of over $1.3 trillion. But Gautam Chhugani and Mahika Shapra at Bernstein see more gains on the horizon.
Analysts recently revised their year-end price target to $90,000, down from $80,000, due to tremendous demand for spot Bitcoin exchange-traded funds (ETFs) and the impact of the halving event expected next month. In a note to clients, Chhugani and Shapra said 2024 would be a "major inflection year" for the cryptocurrency.
Investors should never fixate on short-term price targets, but what Bernstein's analysts are suggesting is pretty mild compared to other forecasts out there. For example, Cathie Wood of Ark Invest recently said that a single Bitcoin could reach $3.8 million by 2030. That estimate is based on the idea that institutional investors will end up allocating about 5% of their assets to the cryptocurrency. .
In any case, if Chhugani and Shapra are correct in assuming that Bitcoin will reach $90,000 in 2024, its market capitalization would increase by almost $500 billion, bringing its total valuation to $1.8 trillion. Here's what investors need to know.
Bitcoin Spot ETFs Have Already Exceeded Expectations
The Securities and Exchange Commission (SEC) received its first Bitcoin Spot ETF application in 2013, but did not approve any until January. That decade-long process has forever changed the cryptocurrency market. Bitcoin Spot ETFs offer direct exposure to Bitcoin without the rigmarole of cryptocurrency exchanges and blockchain wallets. In other words, they make it much easier for retail and institutional investors to add bitcoin to their wallets.
To say the launch has been a success would be an understatement. Prior to the approval, Bernstein analysts expected Bitcoin ETF spot inflows to reach $5 billion in the first half of the year and $10 billion in the second half. In other words, they anticipated $15 billion in total inflows throughout 2024. That would have been impressive, but what actually happened was astonishing.
Specifically, Black Rock only attracted 10 billion dollars to its iShares Bitcoin ETF (NASDAQ:IBIT) during the first two months of negotiation. No ETF has reached that milestone faster, according to Bloomberg analyst Eric Balchunas. Additionally, cumulative inflows into all spot Bitcoin ETFs have surpassed $25 billion, meaning demand has already exceeded what Bernstein analysts expected for the full year.
Bitcoin mining rewards halving should boost demand
Bitcoin's supply limit of 21 million coins is critical to the investment thesis because it creates scarcity and prevents inflation. That makes cryptocurrency valuable in the same way that scarcity makes precious metals valuable. The supply limit is enforced by a periodic halving of mining rewards, an event that is encoded in the Bitcoin protocol, according to Coinbase Global.
Here's how it works: Miners earn Bitcoin when they successfully validate blocks of transactions and add them to the blockchain. The reward drops by 50% every time 210,000 blocks are completed, which occurs approximately once every four years. The next halving is expected to be mid-April 2024.
Nothing extraordinary will happen on the day when mining rewards are halved. However, the event is important for investors because it should be preceded by lower selling pressure. Specifically, miners sell Bitcoin to finance their operations and earn a salary, but they will only have half of Bitcoin to sell over the next four years.
The impact of previous halving events is shown in the chart below. Bitcoin has always been more valuable 24 months later.
|
Halving date |
Price reduced by half |
Price 24 months later |
Return |
|---|---|---|---|
|
November 2012 |
$12.35 |
$376.15 |
2.946% |
|
July 2016 |
$647.11 |
$6,306.85 |
875% |
|
May 2020 |
$8,821.18 |
$31,026.93 |
252% |
Data sources: Coinbase, Cointelegraph, StatMuse and YCharts.
History says Bitcoin will drop 50% at some point
Bitcoin has created enormous wealth since its creation in 2009, but the cryptocurrency has also been very volatile. Bitcoin has suffered three catastrophic crises in the last seven years. It fell 83% between December 2017 and December 2018. It fell 53% between April 2021 and July 2021. And it fell 77% between November 2021 and November 2022.
What makes those crises especially alarming is that Bitcoin hit a new record before each one. In other words, Bitcoin has fallen more than 50% from an all-time high three times in the last seven years. Investors should be prepared for similar volatility in the future.
So Could Bitcoin Hit $90,000 This Year? Sure, that outcome is certainly plausible, but it is by no means guaranteed. Investors should buy Bitcoin only if they are comfortable with risk and volatility, and only if they plan to hold the cryptocurrency for a few years.
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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool positions and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
1 Top Cryptocurrency to Buy Before Its Value Soars Another $500 Billion, According to Certain Wall Street Analysts was originally published by The Motley Fool
