Bitcoin (BTC -1.53%) had a miserable 2022, and the token remains down by more than half from its all-time high. Investors are still digesting a wave of negativity, which included the collapse of several cryptocurrency exchanges last year, not to mention some of the industry's most prized stablecoin experiments.
But the crypto winter might be thawing, because Bitcoin has gained an impressive 84% in 2023 so far, outpacing traditional asset classes, including the stock market. The leading cryptocurrency has regained the attention of some Wall Street analysts, including the managing partner of Fundstrat, Tom Lee, who recently told CNBC he thinks it could be on its way to $200,000.
Lee has been spot on about the stock market lately, so it's worth paying attention to his call on Bitcoin. Here are the details.
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Why investors went cold on the crypto industry
The decentralized concept behind cryptocurrencies resonates with many consumers who might have some level of distrust for the traditional banking system, and even their governments. But last year, they learned the true value of regulation.
The crypto industry suffered a plethora of high-profile collapses, with the TerraUSD stablecoin wiping out an estimated $60 billion worth of value seemingly overnight. Then, just months later, one of the largest cryptocurrency brokerages in the world -- FTX -- was found to have misappropriated customer funds. Investigations are ongoing, but as it stands, FTX customers are owed an estimated $3 billion.
If those funds were held with a U.S. bank instead of being held offshore in places like the Bahamas, account holders would have automatically been insured for up to $250,000, thanks to the government-backed Federal Deposit Insurance Corp. (FDIC). But unfortunately, FTX customers face the real prospect of a total loss.
Beyond those failures, cryptocurrencies like Bitcoin haven't made much progress with respect to adoption as a payment mechanism. According to Cryptwerk, just 8,091 businesses around the world accept Bitcoin for the sale of goods and services, a drop in the bucket considering more than 330 million registered companies exist as of this writing.
Volatility has likely played some part. Bitcoin's large price swings aren't an attractive feature for consumers who might want to spend it as a currency, because its purchasing power would fluctuate drastically from month to month. Tom Lee touched on that point in his interview with CNBC, saying Bitcoin trades like a risk-on asset, which follows the moves in the stock market.
That stacks up, given the major stock market indexes crashed last year just like Bitcoin, and both are trading comfortably in the green in 2023.
Tom Lee thinks $200,000 is on the table for Bitcoin
Lee has been bullish on Bitcoin for years. Back in May 2021, he predicted the token would close that year at a price of $100,000 -- it didn't happen, so it's always important to be mindful of the risks when buying speculative assets like cryptocurrencies.
Nonetheless, Lee cites a few reasons the token could climb over the next few years. He thinks it's particularly important that large asset managers like BlackRock are stepping into the crypto industry, filling the void left by bad actors like FTX. BlackRock recently filed to list a Bitcoin exchange traded fund (ETF), and there is speculation the Securities and Exchange Commission (SEC) might be on its way to approving it, despite being opposed to such securities in the past.
Fidelity Investments has also just applied for a Bitcoin ETF. As more trusted, well-known firms on Wall Street throw their hats into the ring, the SEC might find it harder to justify further rejections. After all, its job is to protect investors, and having them place funds in the hands of regulated financial institutions in the U.S. is preferable to them sending money offshore to unregulated brokerages.
When it comes to setting a price target, Lee has referred to the work done by Ark Investment Management and the firm's CEO, Cathie Wood. Ark's base case is for Bitcoin to reach $600,000 per token by 2030, and it says there's even potential for it to reach $1 million in more bullish conditions. Wood has cited this year's regional banking crisis as a driver of Bitcoin adoption, and Lee says her idea of network value for Bitcoin and its scarcity suggest a price of "$200,000 plus" might be possible.
Still, setting price targets based on those factors requires a huge amount of guesswork. Bitcoin generates no revenue or earnings, so pinning down a true value the same way you would for traditional financial assets is practically impossible.
It's unlikely any of these factors will draw consumers into the Bitcoin ecosystem, so it might still be relegated to the whims of speculators. But credible U.S. firms becoming more active in the space could entice a more conservative investor class into the asset, which is a positive in the long term. Personally, I wouldn't bet my money on Bitcoin soaring 549% from here to reach $200,000, especially with plenty of other exciting and much safer opportunities out there.
