In February, Cathie Wood of Ark Invest made headlines when she raised her firm's 2030 price target for Bitcoin (BTC -2.19%) from $1 million to an eye-popping $1.48 million. Now, six months later, she's doubling down on that price forecast, more convinced than ever that Bitcoin is on a trajectory to $1 million and beyond.
So is she right? Certainly, $1.48 million sounds like an outlandish forecast, even for Bitcoin. After all, Bitcoin is still trading around $30,000, nearly 60% below an all-time high of $68,789. But Wood says she has the numbers to back up her assertions, so let's dig in.
Bitcoin as safe haven
According to Wood, Bitcoin is the perfect "insurance policy" for an uncertain economic world. What convinced her more than anything was Bitcoin's performance during the regional banking crisis earlier this year, when Bitcoin skyrocketed from $19,000 to $30,000. That nearly 60% gain signified to Wood that Bitcoin was increasingly being viewed as a safe haven in an unsafe world. During any "flight to safety," investors would rush to move their money into Bitcoin.
In short, Bitcoin is once again being viewed as "digital gold." Before the 2022 crypto market meltdown, it was commonplace to talk about Bitcoin as an alternative to physical gold, and as the ultimate store of value. According to Wood's bull case scenario, Bitcoin will eventually have a 50% share of the "store of value" market once dominated by gold.
That figure might sound high, but it lines up with what Goldman Sachs Group (GS 1.79%) predicted at the start of 2022. Back then, Goldman Sachs predicted that Bitcoin would eventually account for a larger and larger share of this market, rivaling gold. Based on that prediction, Goldman Sachs set a Bitcoin price target of $100,000.
Bitcoin and institutional investors
Cathie Wood's valuation model for Bitcoin also includes some key assumptions about the behavior of institutional investors. The key metric to watch here is their asset allocation to crypto, and specifically, Bitcoin. In her firm's bear case scenario for Bitcoin, this allocation stands at a relatively paltry 1%. But it climbs to 2.5% in the base case scenario, and then skyrockets to 6.5% in the bull case scenario.
Image source: Getty Images.
The recent rush to file spot Bitcoin ETF applications with the SEC is perhaps the best sign yet of potential new institutional investor interest in Bitcoin. In mid-June, BlackRock (BLK 0.69%) led the way with a spot Bitcoin ETF filing. Soon after, Ark Invest followed with an amended application for a similar type of spot Bitcoin ETF filing. No surprise here, but Bitcoin rallied hard in June after these announcements. These spot Bitcoin ETF filings were supposedly going to unlock a tsunami of new money into Bitcoin, pumping up the price of this crypto.
Are these forecasts accurate?
What's interesting is how two relatively small assumptions -- that Bitcoin will rival gold as a store of value, and that Bitcoin will represent a larger share of institutional asset allocations -- can lead to the monumental assumption that Bitcoin will soon be worth over $1 million.
From my perspective, the assumption about the behavior of institutional investors is the most important. As Ark Invest noted in its February report, there has been an absolute sea change in the way that institutional investors think about crypto. Some big-time investors, including BlackRock and Fidelity Investments, are now very much aboard the crypto train. Their clients are demanding greater access to crypto, and they are now attempting to meet that need.
What to look for next
In terms of what's next for Bitcoin, I'm keeping my eyes on how Bitcoin fares amid the economic uncertainty. I'm not quite ready to buy into the idea that Bitcoin is a "safe" investment, and certainly not after what we saw during the crypto winter of 2022, when Bitcoin lost nearly 65% of its value. But if there is another flare-up of the regional banking crisis, and investors behave the same way that they did earlier this year, I might be convinced.
Long-term, I'm bullish on Bitcoin. It might not reach $1.48 million by 2030, as Cathie Wood and Ark Invest are predicting, but it's almost certainly going up over the next decade. If institutional adoption rates skyrocket, then Bitcoin could be off to the races.
