With Bitcoin (BTC -0.49%) up more than 125% this year, it's becoming increasingly possible that this high-flying crypto might surge through the $1 trillion valuation mark sometime next year. Given Bitcoin's circulating supply of roughly 20 million coins, a valuation of $1 trillion implies a price of about $50,000. This represents a 30% gain from today's price of almost $38,000.
That price target certainly seems possible, given that it wouldn't even require Bitcoin to regain its all-time high of almost $69,000. Could Bitcoin rally to $50,000 and top a $1 trillion valuation in the coming months? Let's take a closer look.
The Bitcoin ETF factor
Bitcoin's current rally has been driven, to a large extent, by investor anticipation of the first-ever spot Bitcoin exchange-traded fund (ETF) for the U.S. market. In June, BlackRock led the way with a spot Bitcoin ETF application. Within the span of just a few weeks, a handful of other large institutional investors were also lining up with their own spot Bitcoin ETF applications. The current thinking is that the Securities and Exchange Commission (SEC) could give its final approval for a spot Bitcoin ETF sometime in the first quarter of 2024.
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There are a number of useful back-of-the-envelope calculations that can be used to assess the impact of this approval. The easiest approach is to add up all the assets under management of the large institutional investors applying for these spot Bitcoin ETFs, and apply a scaling factor of, say, 1% to that number. That tells you how much new money might be flowing into Bitcoin. For example, if you assume that institutional investors will allocate just 1% of their $5 trillion in assets under management to Bitcoin, that would result in a new influx of $50 billion into Bitcoin.
Another approach is to consider Bitcoin from the perspective of a precious metal. Bitcoin is often described as "digital gold," and many investors view it as a store of value, similar to physical gold. Thus, it's not out of the realm of possibility to think that some investors might move their assets out of precious metals and into Bitcoin. Right now, about $120 billion is held in precious metals ETFs. So, if you assume that anywhere from 10% to 20% of that might be reallocated to Bitcoin, that would result in a potential influx of anywhere from $12 billion to $24 billion. This new flow of money, presumably, would help to bid up the price of Bitcoin.
The global growth factor
You're probably thinking, "That sounds great, but hasn't the market already priced in some, if not most, of the impact of a spot Bitcoin ETF?" If you believe in the efficient market hypothesis, which says that the market has already priced in all known information, then you could be right. Coinbase Global, for example, has already run the numbers and concluded that some of the spot Bitcoin ETF impact might already have been priced in.
That's why I have a second big reason Bitcoin could rally to $50,000 and beyond in 2024: the global growth factor. In short, Bitcoin is becoming an increasingly important part of the world's financial system, and that is leading to new demand for Bitcoin as an asset.
In its Big Ideas report for 2023, Ark Invest shared its forecast for several different market segments where it saw Bitcoin building momentum worldwide. By estimating how much of each market segment Bitcoin might command in the future, Cathie Wood of Ark Invest came up with a base, bear, and bull case scenario for Bitcoin for the year 2030.
For example, Wood calculated that, in a base case scenario, Bitcoin might account for 3% of the M2 money supply of emerging market countries, and 2.5% of the portfolio allocation of institutional investors. All of that led to a base case forecast of $682,800 for Bitcoin. So even if you dial back some of these numbers (such as changing the portfolio allocation percentage from 2.5% to 1%), you're still going to get a huge number. The bear case scenario for Bitcoin, says Wood, calls for a price of $258,500 by the year 2030.
Can Bitcoin reach $50,000?
Given the above, I don't think $50,000 is an outlandish price target for Bitcoin. Especially given the fact that some analysts are already projecting that Bitcoin could top $100,000 by the end of 2024. Standard Chartered Bank, for example, recently doubled down on a $100,000 price target for Bitcoin.
At today's prices, a target of $50,000 requires only a 30% rise for Bitcoin. If you consider all the money that could be flowing into Bitcoin as a result of a spot Bitcoin ETF approval, and then layer on top of that the overall growth that Bitcoin is seeing on a global basis, then Bitcoin might actually hit a $1 trillion market valuation in 2024. Just keep in mind, though, that given Bitcoin's historical volatility, that path to $1 trillion is likely to be filled with a bit of turbulence along the way. So buckle up.
