After 2022 saw Bitcoin's (BTC -2.38%) price crater 65% amid an aggressive rising rate environment, this year has been a turnaround story. The top digital asset's recent rally (up 76% as of Aug. 14) has many investors excited about its long-term potential.
Bitcoin currently commands about 49% of the overall cryptocurrency market, which is not surprising given its first-mover advantage. And the current price of $29,400, while still 57% below its peak, is astronomically higher than where it was a decade ago.
But can Bitcoin reach $100,000, equaling a more than threefold rise? Here's why I think this is completely within the realm of possibility.
Cathie Wood's perspective
Renowned investor Cathie Wood of Ark Invest has an incredibly lofty price target of nearly $1.5 million per Bitcoin by 2030. That's certainly an extremely bullish outlook. While I have no idea whether this will happen, I agree with Wood's research as it relates to the general direction of Bitcoin's adoption curve.
The key to Ark Invest's thesis is that Bitcoin simply finds its way into more portfolios. This means that individual and institutional investors, corporations, and governments will start to allocate capital to Bitcoin. Therefore, it can become a more popular reserve asset.
Wood and her team also believe that Bitcoin will be used for global remittances, as a form of currency in emerging markets, and to settle transactions among banks in the U.S. I view these scenarios as having lower probabilities of success.
The digital version of gold
Adding to the point above, Bitcoin's most realistic use case is that it one day solidifies itself as a prominent store of value. To be more specific, it can be a substitute for owning gold, which has been a popular asset for thousands of years.
But Bitcoin has some important advantages compared to the precious metal. The cryptocurrency is more divisible, useful in transactions, and portable. And its fixed supply cap of 21 million tokens introduces scarcity. If demand for Bitcoin goes up, nothing can be done to alter the growth in its supply because the limit is hard coded into the software.
On the other hand, should the demand for gold skyrocket, it would become more economically feasible for mining companies to explore different regions of the world to find new deposits. In other words, the supply dynamics could change.
Understand the risks
Although there's a lot to like about Bitcoin, investors should be mindful of the most important risk factor: Governments banning it. In 2021, China made it illegal to mine and own cryptocurrencies. As the world's second-largest economy, with a population of 1.4 billion people, this was huge news.
Naturally, there's also a worry that the U.S. will follow the same path. What's encouraging, however, is that Securities and Exchange Commission Chairman Gary Gensler has publicly stated that the agency has no plan to ban Bitcoin, viewing it as a commodity instead of a security. In fact, clearer regulation could actually be a boon for Bitcoin because then it could be seen as more of a legitimate asset.
A popular argument for banning Bitcoin is that it is used in illicit activities. But this fails to recognize that fiat (government-backed) currencies have long facilitated these types of transactions. And according to data from Chainalysis, a blockchain research company, only 0.24% of cryptocurrency activity in 2022 was used for illegal purposes.
As wealthier Americans -- at least those who donate to political parties -- start to own more Bitcoin over time, it will be even harder for the government to ban it. And from the perspective of the U.S., prohibiting the use of Bitcoin could lead to the country falling behind in terms of innovation, something that could have drastic consequences from a geopolitical perspective.
Keeping these risks in mind, I still think it's more likely than not that Bitcoin will reach $100,000. And I wouldn't be shocked if it happened within the next five years.
