Even with the recent lull to start 2022, a time when the cryptocurrency market has shed approximately 20% of its value (as of March 5), the entire asset class has been an outstanding investment in recent years. While the S&P 500 produced a total return close to 100% over the past five years, cryptocurrencies have gone from a total market value of $24.5 billion in March 2017 to $1.8 trillion today.
The top cryptocurrency, Bitcoin (BTC 0.69%), has unsurprisingly garnered a lot of attention as digital assets march toward mainstream adoption. And as it becomes a daily topic of discussion in the financial news, there is no shortage of price targets out there.
CRYPTO: BTC
Key Data Points
Can Bitcoin, whose value currently hovers around $40,000 per coin, hit the $100,000 mark? Let's take a closer look.
Bitcoin is becoming a legitimate store of value
With its ability to support decentralized applications, Ethereum rightfully receives attention as it offers up real-world cryptocurrency use cases. On the other hand, Bitcoin has firmly become more of a store of value in the world of digital assets. Launched in 2009, it has the longest history. And it now carries a market cap of $734 billion (as of March 7).
This longevity has resulted in the development of financial infrastructure to make it extremely easy to buy Bitcoin. There are exchange-traded funds to purchase the world's top cryptocurrency. Additionally, businesses like Block, PayPal Holdings, and Coinbase Global have made it incredibly simple to gain exposure to Bitcoin.
According to research from crypto.com, there were 300 million cryptocurrency users worldwide at the end of 2021. And by the end of 2022, that number could be 1 billion. Since most people's first exposure to cryptocurrencies is to purchase Bitcoin or Ethereum, the potential for massive buying pressure is definitely there as new investors enter the crypto economy.
And it's not hard to imagine a scenario where more countries follow in El Salvador's footsteps to establish Bitcoin as legal tender. Furthermore, large organizations, including governments, institutional investors, and corporations, could choose to convert some of their cash holdings to Bitcoin. Combined, these trends could easily propel Bitcoin past $100,000.
Famed investor Cathie Wood and her firm Ark Invest, which is known for making eye-popping predictions, thinks Bitcoin could eclipse $1 million per coin by 2030. Her company's target depends on a lot of things happening, like more countries accepting Bitcoin as legal tender, greater institutional and corporate ownership, and a higher share of the global remittance market. This is the most optimistic scenario in my opinion, so investors should temper expectations to get a more accurate picture.
Image source: Getty Images.
Bitcoin makes sense for long-term investors
I'm bullish on the entire crypto economy, so making the decision to allocate a small portion (1% to 2%) of a well-diversified portfolio to Bitcoin seems like a no-brainer to me. Cryptocurrencies have endured numerous "crypto winters" in recent years, only to come raging back stronger. And some of the best and brightest minds are leaving lucrative jobs in traditional tech and finance to work at crypto start-ups. These factors give me confidence that cryptocurrencies will only become a bigger part of our lives in the years ahead.
Perhaps the biggest bear argument is the threat of governments banning cryptocurrencies (like China did last year). But in the U.S., both Federal Reserve Chair Jerome Powell and Securities and Exchange Commission Chair (SEC) Gary Gensler have publicly stated that they don't intend to make cryptocurrencies illegal. This bodes well for supporters of digital assets.
Therefore, it's difficult to see a future where Bitcoin doesn't appreciate in value. It certainly won't be a smooth ride, and investors can expect tremendous volatility along the way. But with the continued proliferation of necessary financial infrastructure, as well as much-needed regulatory clarity, I believe Bitcoin reaching $100,000 is a likely scenario.
And at that price, Bitcoin's total market cap would approach $2 trillion. According to consultancy McKinsey, global wealth today is in the neighborhood of $500 trillion. It's not unreasonable to see Bitcoin represent half of a percent of that figure.
If I had to put a time frame on it, I'd say it could happen within five years, which would produce an annualized return of roughly 20%. Compared to Bitcoin's trailing five-year return of 3,000%, this is a major slowdown. Nonetheless, the potential to outpace the stock market is very high.
