Cathie Wood is the founder and chief executive officer of Ark Invest, an asset management company focused on disruptive technologies like blockchain and cryptocurrency. Wood and her team are optimistic about the decentralized finance market, in general, but they're especially bullish on Bitcoin (BTC 0.33%).
Ark published a Bitcoin valuation model earlier this year that outlined three price trajectories the digital currency could follow through the end of the decade. The bull case prices Bitcoin at $1.48 million (per coin) in 2030, implying more than 3,400% upside from its price of about $42,000 at the time this article was written.
Here's what investors should know.
CRYPTO: BTC
Key Data Points
The investment thesis for Bitcoin
The investment thesis for Bitcoin is based on good old-fashioned supply and demand. Its source code limits supply to 21 million coins, and that scarcity is partially responsible for its value. Gold and other finite assets have value for the same reason. In fact, Bitcoin is sometimes called digital gold.
The other half of the equation is demand. When supply is fixed or highly constrained, the price of an asset moves in tandem with demand. Well, another word for demand is popularity, and Bitcoin has that in spades. It was the first widely adopted crypto asset and remains the most valuable by a wide margin. Bitcoin currently accounts for more than 50% of the collective value of all cryptocurrencies.
The real question is, in which direction will Bitcoin demand trend in the future: higher or lower? Cathie Wood sees demand intensifying in the years ahead.
Ark Invest's Bitcoin valuation model
Ark Invest recently published a Bitcoin valuation model that presents three possible price targets in 2030, as detailed below:
- Bear case: $258,500, implying 515% upside
- Base case: $682,800, implying 1,525% upside
- Bull case: $1.48 million, implying 3,425% upside
All three scenarios are based on Bitcoin's ability to disrupt eight markets to varying degrees. In other words, Ark identifies eight sources of potential demand that could make Bitcoin more valuable in the future, as detailed below:
- Corporate treasuries: The cash and cash equivalents held by public and private companies. Ark believes Bitcoin will account for somewhere between 0% (bear) to 5% (bull) of corporate treasury holdings in 2030.
- Remittances: Funds sent from one person to another. The term is often used to describe money sent between family members in different countries. Ark believes Bitcoin will account for 5% (bear) to 25% (bull) of global remittance volume in 2030.
- Nation state treasuries: Financial assets owned by governments and primarily used to balance payments. Ark believes Bitcoin will account for 0% (bear) to 5% (bull) of global treasury reserves in 2030.
- Emerging market currencies: Money systems in countries undergoing robust economic expansion but don't yet possess all the qualities of a developed country. Ark believes Bitcoin will account for 0.5% (bear) to 10% (bull) of currency in emerging markets in 2030.
- Economic settlement: The sum of money used to settle transactions between clients of different financial institutions. Ark measures this opportunity against U.S. bank settlement volume, anticipating that Bitcoin will account for 1% (bear) to 10% (bull) of that total in 2030.
- HNWI assets: Financial assets owned by high-net-worth individuals (HNWI), a term usually applied to people with at least $1 million in investments. Ark believes Bitcoin will account for 1% (bear) to 5% (bull) of HNWI assets in 2030.
- Institutional assets: Invested assets managed by financial advisors, hedge funds, and endowments, among other types of institutional investors. Ark believes Bitcoin will account for 1% (bear) to 6.5% (bull) of institutional assets in 2030.
- Gold: Ark believes Bitcoin will be treated much like physical gold as a store of value, siphoning off 20% (bear) to 50% (bull) of funds that would have otherwise been invested in gold in 2030.
Of those eight markets, Ark projects the largest opportunities as (1) institutional assets, (2) emerging market currencies, (3) gold alternatives, and (4) HNWI assets. Bitcoin is far from satisfying the base case estimates across those categories, let alone the bull case estimates. But some of Ark's assumptions appear plausible.
For instance, several large public companies have already incorporated Bitcoin into their treasury strategies, including Tesla, Block, MercadoLibre, and MicroStrategy. Several national governments also own Bitcoin.
Additionally, a recent survey from Fidelity found that, while penetration remains low among hedge funds and endowments, most financial advisors and HNWIs have purchased Bitcoin. Some analysts see that trend intensifying in the years ahead.
Paul Maley, Deutsche Bank's global head of securities services, recently told Reuters that Bitcoin was "bound to be seen as one of the priorities for investors and companies."
Bitcoin is worth buying for some investors, but with tempered expectations
Attempting to value Bitcoin is difficult. Cryptocurrencies aren't the same as companies that generate cash or fixed-income securities, so they can't be evaluated in the same way as either. Ultimately, the extent to which Bitcoin disrupts the markets identified by Ark will depend on sentiment.
How popular will Bitcoin be with investors, companies, governments, and consumers in seven years? Answering that question with any degree of certainty is impossible. Bitcoin has only been around since 2009, so there's next to no historical precedent. For that reason, if forced to choose between Ark's three scenarios, I would choose the most conservative one.
The bear case hinges almost entirely on the idea that Bitcoin can disrupt the status quo with institutional assets and gold. That seems more likely than Bitcoin being widely adopted as an emerging market currency, settlement currency, or nation state reserve currency. To be clear, I'm not saying the 515% upside implied by the bear case is money in the bank, but rather, I'm identifying the scenario I see as most probable.
Here's the bottom line: Cryptocurrency is a risky asset class. But I think investors should consider buying a small position in Bitcoin if they can (1) tolerate substantial volatility, (2) handle losing money, and (3) commit to holding their Bitcoin for at least five to seven years.
