There has been a lot of Bitcoin (BTC -1.25%) exuberance lately, with Bitcoin up more than 15% over the past week, and almost 70% for the year. Bitcoin now trades at almost $28,000, and accounts for a staggering 46% of the total market capitalization of the $1.2 trillion crypto market. Everyone, it seems, wants a piece of Bitcoin these days.
Perhaps not surprisingly, given all this bullishness, some tech insiders are now predicting that Bitcoin could hit $100,000 soon, perhaps within the next 12 months. That includes Apple co-founder Steve Wozniak, who recently suggested a price of $100,000 was possible. But just how realistic is this price target? After all, Bitcoin's all-time-high is $68,789.63, and that was at the peak of the bull market in tech. Here's a closer look at several factors to keep in mind if you're expecting Bitcoin to soar by the end of the year.
Interest rates
Until recently, the primary factor influencing the future price of Bitcoin was the Federal Reserve and the path of U.S. interest rates. Thus, for Bitcoin to continue its extraordinary ascent, it seems that it's going to need some help from the Fed. If the Fed pauses its interest rate hikes, or even decides to lower interest rates, that would be very bullish for Bitcoin.
Given the current state of the banking sector, which has been pummeled by rising rates, this might actually happen. That's probably why forecasts of Bitcoin at $100,000 are starting to pop up. Lower interest rates are typically favorable for risk assets such as crypto. But lower interest rates aren't a guarantee.
Bitcoin as digital gold (the sequel)
Remember when everyone thought Bitcoin was "digital gold" and a safe haven against inflation? That was the general thinking among crypto investors until the 2022 market meltdown. Well, it looks like that argument is coming back, in a slightly different form. It's hard to ignore the growing number of analysts who are calling Bitcoin a potential safe haven in the face of a gathering financial storm. Some people are actually saying they'd rather hold Bitcoin than put their money into risky banks.
Image source: Getty Images.
So if Bitcoin does replace gold as the safe haven asset of choice, then that would be bullish for Bitcoin. Keep your eye, too, on what the big institutional investors are doing with their portfolio allocations. If more and more of them increase their exposure to Bitcoin, then that would also be a huge plus. Some are even suggesting that corporations might start to hold Bitcoin directly on their balance sheets.
Tech stocks
Until the recent banking turmoil, the crypto asset class was highly correlated with the performance of tech stocks. In other words, if big Silicon Valley stocks went up, then crypto went up. If big Silicon Valley stocks went down, then crypto went down.
So I think this is where the $100,000 target idea starts to break down. Have you checked the news recently from the likes of Meta Platforms, which just laid off another 10,000 employees? Or Amazon, which yesterday said it was cutting an additional 9,000 jobs. A number of big-name tech companies have also announced huge rounds of layoffs, so I don't see a rebound happening in tech stocks anytime soon. Add in the fact that Silicon Valley Bank was the go-to lender for small tech start-ups, and things don't get any more encouraging.
Bitcoin's long march to $100,000?
I think Bitcoin will eventually break through the $100,000 mark. But it could take longer than many people now expect. I'm basing my analysis on long-term secular trends happening in financial markets, such as Bitcoin's growing adoption as a form of payment, and Bitcoin's growing allocation in the portfolios of institutional investors.
Investors should be deeply skeptical of any argument that basically boils down to, "The fiat money system has failed, now it's all clear for crypto." This argument is not just naive, but it also puts crypto investors into a difficult position. Who wants to root for bank failures and bank runs?
Keep in mind that predicting the future of the economy is difficult. As legendary economist John Kenneth Galbraith once remarked, "The only function of economic forecasting is to make astrology look respectable." Nobody really knows what's going to happen with Bitcoin this year because nobody really knows what's going to happen with the economy. I'm bullish on Bitcoin long-term, but I also recognize that the path to $100,000 might be more difficult and more challenging than many crypto bulls now are willing to acknowledge.
