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Bitcoin (BTC -2.19%) It reached an important milestone in February, surpassing $50,000 for the first time since December 2021. Cryptocurrencies have rallied 120% over the past year as economic optimism led to rotation into risk assets. Recently, the approval of Spot Bitcoin Exchange Traded Fund has also contributed to the price increase.
However, Cathie Wood’s Ark Invest believes Bitcoin will rise further. Ark analysts suggest a bull case price target of $1.48 million by 2030, implying an upside of 2,860% from current price. If this estimate proves accurate, his $10,000 invested in Bitcoin today will be worth about $296,000 by the end of his decade.
Here’s what investors need to know about this cryptocurrency.
Bitcoin generates superior returns compared to other asset classes
Bitcoin has been an incredible investment over the past five years. In fact, investors would have been hard-pressed to find a better place to put their money. The cryptocurrency returned 1,140% from January 2019 to January 2024, with an annual compounding rate of 65%.
This impressive growth far outpaces any other major asset class. Over the same five-year period, commodities returned 5.4% per year and emerging market stocks returned 1.4% per year. S&P500 According to , U.S. bonds return 14.3% annually, U.S. bonds return 0.8% annually, and high-yield corporate bonds return 4.4% annually. morgan stanley.
Even better, Bitcoin has outperformed these asset classes in four of the past five years. This means that Bitcoin’s strong returns were not brought about by one exceptionally strong year.
|
asset class |
2019 |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|---|
|
Bitcoin |
85% |
309% |
61% |
(65%) |
154% |
|
merchandise |
Ten% |
(3%) |
31% |
twenty one% |
(Four%) |
|
emerging market |
20% |
15% |
1% |
(18%) |
Ten% |
|
S&P500 |
29% |
16% |
27% |
(19%) |
twenty four% |
|
us bonds |
8% |
7% |
(1%) |
(12%) |
6% |
|
US high yield corporate bonds |
15% |
7% |
Five% |
(11%) |
13% |
Data sources: YCharts, Dow Jones Commodities Index, Dow Jones Emerging Markets Index, S&P U.S. Aggregate Bond Index, and S&P U.S. High Yield Corporate Bond Index. All percentages are rounded to the nearest whole number.
As shown in the table, Bitcoin has been a consistently profitable investment over the past five years. It was also a volatile investment. The cryptocurrency has fallen by more than 50% three times. But patient investors have been well rewarded for enduring that volatility.
“Historically, investors who buy Bitcoin and hold it for at least five years have made money, regardless of when they bought it,” according to Ark Invest. Bitcoin was created in 2009, so it doesn’t have a long history.
Important Catalysts for Bitcoin in 2024 (and Beyond)
The price of Bitcoin, like any other asset, depends on supply and demand. However, Bitcoin is somewhat special because its supply is finite. Specifically, its source code states that every time 210,000 blocks are added to the blockchain, approximately once every four years, the mining reward will decrease by 50%. This mechanism is known as the Bitcoin Halving and limits the supply of Bitcoin to 21 million units.
To that end, the only influencing variable when it comes to Bitcoin is demand, and two major catalysts are likely to boost demand in the coming years:
- Spot Bitcoin ETF: The Securities and Exchange Commission (SEC) recently approved 11 Spot Bitcoin ETFs, which are funds that track the price of Bitcoin. Individual and institutional investors can now gain direct exposure to cryptocurrencies without the hassle of dedicated exchanges or storage solutions. In other words, a spot Bitcoin ETF could reduce friction and allow some of the world’s largest asset managers, like No. 1, to significantly boost demand. black rock No. 3 Fidelity — is participating as a publisher.
- Bitcoin halving: The next Bitcoin halving event will be held in April. Mining rewards will drop from 6.5 Bitcoins per block to 3.25 Bitcoins per block, effectively increasing demand by reducing sales. According to the report, miners currently sell about $12 billion worth of Bitcoin annually. micro strategy CEO Michael Saylor. However, with the next halving event, that selling pressure will be cut in half as miners will bring in half as much Bitcoin over the next four years.
Ark Invest believes the catalyst will drive Bitcoin further higher in the coming years. The company outlined three different price targets. In that bearish scenario, Bitcoin is valued at $258,500 by 2030, implying a 417% upside. In the base case, Bitcoin would be valued at $682,800 by 2030, implying an increase of 1,265%. And in the bullish case, Bitcoin would be valued at $1.48 million by 2030, implying an upside of 2,860%.
Cathie Wood recently told CNBC that bullish prospects have increased following the approval of a Spot Bitcoin ETF.
Bitcoin is a worthwhile investment for some investors
It’s fun to come up with sensational price targets, but investors need to focus on facts, not speculation. In this situation, the facts are simple. Bitcoin has been a great investment for the past five years, and its price is likely to continue to rise as demand increases due to Bitcoin spot ETFs and the upcoming halving event. But Bitcoin has also been a volatile investment over the past five years, and the cryptocurrency market is rife with regulatory uncertainty.
Patient investors who can tolerate these drawbacks may consider keeping a small percentage of their portfolio in Bitcoin, provided they are willing to hold the cryptocurrency for at least five years. Personally, I would limit my initial exposure to a maximum of 5%.
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