One of the most followed investors on Wall Street is Ark Invest CEO Cathie Wood. Wood has earned a reputation as a strong advocate for emerging technology trends in areas such as electric vehicles (EV), artificial intelligence (AI), and genomics.
From time to time, Ark Invest releases research to the public, giving investors an insight into the data and work behind Wood's forecasts. Given her keen interest in technology, it's probably no surprise to learn that Wood is an advocate for bitcoin (btc -0.34%).
Although she is not the only one institutional investor Strongly supporting Bitcoin, she is undoubtedly one of the most optimistic. Two weeks ago, Ark Invest released its annual Big Ideas report for 2024. One of the highlights of the presentation was Wood's latest outlook on Bitcoin.
Although he doesn't specify an exact timeline, Wood is calling for Bitcoin to reach a price of $2.3 million per token, which represents an increase of more than 4,000% from Bitcoin's current price.
So, is it time to invest money in Bitcoin? Let's delve into Wood's case and evaluate whether Bitcoin is right for you.
A breakdown of Cathie Wood's latest take on Bitcoin
Bitcoin is different from other asset classes like stocks or bonds. Generally speaking, during times of economic instability, investors may consider alternatives such as real estate, art or commodities such as gold.
Although cryptocurrencies are a fairly nascent asset class, Bitcoin in particular has been some features overlaid with gold because both are considered scarce. For this reason, some see assets like gold or Bitcoin as a haven or store of value. In fact, some investors refer to Bitcoin as digital gold.
At a high level, Wood sees Bitcoin as an important component of portfolio structure to mitigate risk. However, the most important detail is how much weight Bitcoin should represent in his opinion.
The following table illustrates Wood's proposed portfolio allocation:
| Asset type | % allocation |
|---|---|
| Gold | 40.7% |
| Actions | 30.3% |
| bitcoin | 19.4% |
| Raw Materials | 9.6% |
| Captivity | 0% |
Source: Ark Invest Big Ideas 2024 Report.
With an allocation of nearly 20%, it's clear that Wood believes Bitcoin should be a featured item in a diversified portfolio. Calculating Wood's $2.3 million price target requires a little more calculation.
According to Ark Invest, the global investable asset base amounts to $250 trillion. In other words, this is the amount of money that could theoretically be deployed in the markets. Also, as I said above, Bitcoin is a scarce asset and only 21 million coins will enter circulation. So far, approximately 19.6 million Bitcoins have been mined.
If you take Wood's proposed Bitcoin allocation of 19.4% and multiply it by the investable asset base of $250 trillion, she calls for a total of $48.5 trillion to be allocated to Bitcoin. If this sum were to purchase the 19.6 million Bitcoin currently in circulation, it would result in a price of around $2.3 million per token.
Now that the math equations are out of the way, you're probably wondering how likely this is to happen.
Image source: Getty Images.
What could generate more interest in Bitcoin?
Although the above analysis is entertaining, it is simply a fun exercise with numbers. The reality is that the price of Bitcoin, like that of other assets, will be determined through the dynamics of offer and demand. Perhaps a 19.4% allocation to Bitcoin could be considered too high, but I agree with Wood that it will take an enormous amount of money to significantly raise the price of Bitcoin. For this to happen, I believe greater institutional ownership is required.
As it stands today, Bitcoin is still considered highly speculative. Cryptocurrencies do not have as many use cases as traditional ones fiat currency, and it is not yet known whether Bitcoin and other currencies are here to stay for the long term. However, there are some notable topics to discuss that could generate more interest in Bitcoin from larger money managers.
Earlier this year, the Securities and Exchange Commission (SEC) approved a series of Bitcoin spot operations. exchange traded funds (ETF). The main goal of these products is to track the performance of Bitcoin without requiring investors to invest directly in the currency.
If these vehicles are successful and generate significant interest, larger investors may consider exploring cryptocurrencies further and potentially allocate some funds to Bitcoin. As Wood's math demonstrates, the price of Bitcoin should increase significantly if this happens at scale.
Should you invest in Bitcoin?
I find Wood's Bitcoin forecast interesting and applaud her for sticking to her firm conviction. However, calling for an increase of almost 4,300% from the current price of Bitcoin seems a bit far-fetched.
I agree that over time, more institutional money will flow into Bitcoin. But for me, the biggest questions are how long it could take for Bitcoin to be accepted as mainstream, and even if it is, how much allocation the asset will represent in a portfolio.
The risk-reward dichotomy in owning Bitcoin cannot be misunderstood. While you can win a lot of money, you can lose the same amount. Although this can also be said for other asset classes like stocks, Bitcoin simply does not have the same characteristics.
Unlike a stock, Bitcoin does not produce profits or cash flows, pay dividends, or have a management team with a strategy. There is not even a clear regulatory framework. It really is a decentralized and high-risk investment option.
Given the amount of uncertainty surrounding Bitcoin, investors should think carefully before entering the coin or the cryptocurrency market in general, no matter what the upside potential is.
