Bitcoin (BTC -2.31%) is changing hands for approximately $43,100 per coin today. That's 37% below the all-time high of $68,790, recorded in November 2021 -- just before the inflation crisis besieged all sorts of financial markets.
But the oldest and largest cryptocurrency has a few tricks up its encrypted sleeve. There are no guarantees in investing, and there's always room for game-changing surprises, but Bitcoin is due for another large price jump. If Bitcoin doesn't reach $150,000 before the end of 2025, I'll have to buy a tasty hat and eat it.
But first, a word from my conscience
Before diving into the reasons for Bitcoin's highly likely price jump, let me reiterate some of this investment's most worrying risks:
- The digital coin is incredibly volatile, because its price depends on a hefty amount of speculation so far. Between the fear of missing out on future gains and panic selling at the slightest hint of a scandal or threat, you never know where Bitcoin will go tomorrow.
- People don't use it to buy groceries, cars, or houses due to slow transaction processing and high fees. Limited real-world usage makes the cryptocurrency less valuable.
- Regulatory changes in key markets such as the United States, China, or Kazakhstan could bring the whole system to a screeching halt. More than 72% of global Bitcoin mining took place in these three countries in 2022, according to data from the Cambridge Centre for Alternative Finance. China has now shut down Bitcoin mining, but underground activity continues on the sly, as the local authorities find it difficult to enforce this regulation. Still, legal and regulatory challenges are a real threat to Bitcoin's future operations.
- New technologies could come along and disrupt Bitcoin's comfortable seat on the cryptocurrency throne. Another crypto could turn out to be a better storage vehicle for monetary value in the long term. Hackers may figure out how to crack Bitcoin's multiple layers of security, perhaps using quantum computers and artificial intelligence.
- Really deep-pocketed market actors could theoretically set up enough Bitcoin mining machines to produce more than half of the world's mining hash rate. I can't even put a price tag on this audacious idea, and even a massive and secretive organization such as the Chinese government would find it tough to amass that much computing firepower without raising a lot of curious eyebrows. But it's perhaps the worst thing that could happen to the Bitcoin network as a whole. Smaller attacks of this type could result in price manipulation and weaker security, but a full-on 51% attack would be the end of the game. This attack wouldn't make the attacker wealthy beyond their wildest dreams, but it would wipe out the value of Bitcoin's entire existence. Pop goes the weasel.
Again, I'm not here to scare you into selling your last Satoshi of Bitcoin holdings. The coin looks incredibly likely to skyrocket very soon, but you should know that it's not a free ride to the moon.
Bitcoin "maximalists" such as MicroStrategy chairman Michael Saylor are converting all their cash into Bitcoin, selling more stock and taking on loans to accelerate their cryptocurrency investments. If Bitcoin goes in in the long haul, Saylor will look like a genius. If not, MicroStrategy's crypto plan will fail and the company goes bankrupt. Saylor's confidence is inspiring, but he could still be wrong.
I recommend nothing of the sort, given the robust collection of risks involved. Instead, you should consider making Bitcoin a modest part of your diversified investment portfolio -- like any other stock, bond, or fund.
Image source: Getty Images.
Why those dark clouds don't terrify me
That's just about the largest disclaimer I've ever included in an article -- because I'm making such an audacious price prediction. I really expect Bitcoin's price to triple by the end of next year.
First, the Bitcoin community has solid answers to the concerns listed above.
Bitcoin-based payment apps are bubbling under the surface of the fintech sector, overcoming the slowness and high fees via efficiency-boosting blockchain networks or traditional escrow accounts. Crypto payments could go mainstream in a hurry if and when one of these apps under development strikes the right balance between security, efficiency, and marketing genius.
Developers aren't sitting on their hands, waiting for a game-changing security breach. Bitcoin planners are already planning mitigation of quantum-computing attacks, even though the potential threat is only a playground for researchers so far, a long way away from cracking advanced encryption codes. An ounce of prevention, you know.
The potentially market-closing threat of a 51% attack is highly unlikely, because it requires a mind-blowingly large investment only to destroy an alternative to old-school financial solutions. There is no big payoff at the end of that rainbow, only a less crowded financial market. Even then, I'm sure another cryptocurrency would be happy to step in and take over Bitcoin's role, making the expensive attack ineffective after all. That's the power of a decentralized network in an equally decentralized financial services market.
How the next big price jump should work
So let me get to the point.
By the end of April, Bitcoin will halve the rewards granted to the miners validating its blocks of transaction data. This is the fourth instance of rewards halving, meant to limit inflationary effects and keep the Bitcoin supply low while the real-world demand should rise over time.
There will never be more than 21 million Bitcoins, thanks to hard-coded limitations in the mining and transaction processing code. Changing it would require one of those ultra-expensive 51% attacks, unless you want to talk a global community into undermining the value of their own work and investments. The last Bitcoin should be mined in 2140, when the last halving results in the reward of a single Satoshi -- the smallest denomination in the Bitcoin universe. Limited supply, meet mainstream demand.
Halving the rewards for validating Bitcoin blocks and creating new coins does not reduce the computing work required, or lower the electricity bills involved. Therefore, Bitcoin mining won't make economic sense unless the price goes up after each halving. Without miners, transactions won't be validated, and the whole system will fail. So it's in the market's best interests to hold prices high enough to keep the machinery running.
And I'm talking about a cryptocurrency worth $839 billion today. The investments are already large enough to make even the most graceful exit incredibly painful. Plus, I already talked about the increasing potential for game-changing everyday use of Bitcoin and other crypto names. As long as there is any hope of that trend continuing, Bitcoin prices should rise along with those unstoppable reward halvings. Moreover, Bitcoin transactions are soaring, signaling more real-world usage and more engagement among early users.
Bitcoin Transactions Per Day data by YCharts
The first three halvings saw bearish price moves in the run-up but dramatically higher prices afterward. The price gains from the halving event to the next market peak are calming down as the Bitcoin market matures, starting with an 89-fold increase after the first event in 2012 and cooling to a sevenfold gain in the 2020-2021 cycle.
Time to go shopping -- for Bitcoin, not butter-dipped hats
Anything less than a doubling could fail to support the Bitcoin ecosystem, as noted above. I'll freely admit that the triple-price target is somewhat speculative on my part, based on the cooler halving gains over time paired with rising interest in cryptocurrencies. But the next halving should be another game-changer, and I stand by my bullish price target. The recent introduction of Bitcoin-tracking exchange-traded funds (ETFs) should also boost the price in the long run.
And there you have it. Based on the nature of Bitcoin's economics and the market reactions to previous halvings, I expect the price to triple before the end of 2025. Do note the many caveats discussed earlier, and make sure your portfolio can handle one (or more) of those budding threats undermining the idea of Bitcoin as "digital gold."
Still, this looks like a good time to add some Bitcoin to your holdings, if you haven't yet. I'm not ready to shop for lightly salted hats today.
