Ark Invest CEO and famous stock picker Cathie Wood is one of crypto's biggest bulls. It's no secret that she is extremely optimistic about the long-term potential for cryptocurrencies, with Bitcoin (BTC 1.22%) being potentially one of the best investments to hold on to, according to her.
Today, Bitcoin's value is around $40,000 but in the long run, Wood believes it could be even better than a 10-bagger and grow to $650,000 or more. But why is she so bullish on Bitcoin?
Why Cathie Wood believes Bitcoin could soar to $650,000 and higher
In a recent interview with Yahoo! Finance, Wood was discussing her optimistic views on Bitcoin and what the approval of spot Bitcoin exchange-traded funds (ETFs) would mean for the cryptocurrency. And approval of the ETFs, she believes, would signal to institutional investors that the "coast is clear," implying that it will be safer and more acceptable for institutions to invest in Bitcoin. At the time of the interview, which was in mid-November, regulators hadn't yet approved spot Bitcoin ETFs -- but that finally happened on Jan. 10.
For institutional investors, crypto represents a new asset class where they might decide to invest a certain percentage of their portfolios, with Bitcoin being the most likely option given its popularity and dominance.
Plus, Wood believes Bitcoin's scarcity, with only 19.5 million Bitcoins mined and a limit of just 21 million ever, will also help drive up the price of the digital currency. As demand increases but there isn't a correspondingly large increase in supply, that imbalance could push Bitcoin's coin price and overall valuation higher.
According to Wood, these two factors could help Bitcoin's value rise to $650,000 and potentially even higher.
Is this too bullish of an outlook?
The challenge with Bitcoin is that it's difficult to predict how high the cryptocurrency could rise in value. A few years ago, when investors were bullish on meme stocks and high-risk investments, Bitcoin reached a high of nearly $68,000. But it fell to less than $20,000 again by the end of 2022, proving that it remains highly volatile.
And the assumption that institutional investors will play a big role in such a massive spike in Bitcoin could be a bit too optimistic. After all, it's not as if institutional investors have been sitting on the sidelines, waiting for regulators to approve spot Bitcoin ETFs. According to a 2022 report from Fidelity, 58% of institutional investors were already invested in digital assets.
While it's possible more institutional investors could buy Bitcoin in the future, it also isn't an untapped market. And for institutional investors, it's often a mix of balancing risk and returns. With crypto being highly volatile, there may not be an overwhelming reason to dedicate a significant part of their investment portfolios to crypto.
Investors should temper their expectations for Bitcoin
It's easy to get caught up in the excitement around Bitcoin, given the approval of spot ETFs. But that doesn't mean it's off to the races or that it's going to be a 10x investment on short notice. Institutional investors have already been buying digital assets, and the overall scarcity of Bitcoin is already known and likely priced into its valuation.
Investors who are expecting significant gains from Bitcoin need to remember there are also considerable risks, such as heightened regulation and countries setting up restrictions and even banning crypto altogether. It's by no means a clear path for Bitcoin to get to $650,000 or any other specific level.
While there can be a lot of upside with Bitcoin, there's a lot of risk as well. This remains a highly speculative asset to be investing in. If you're interested in adding crypto to your portfolio, you may want to diversify with other, safer investments to keep your risks under control.
