At the start of 2024, a price target of $100,000 for Bitcoin (BTC 1.45%) looked like a no-brainer. Bitcoin had just rallied more than 150% to a price of $45,000. Wall Street had finally embraced Bitcoin as an asset class, and the imminent arrival of new spot Bitcoin ETFs promised to unlock a torrent of new investor money into Bitcoin.
The problem, however, is that the whole Bitcoin ETF investment thesis hasn't panned out as expected. In fact, Bitcoin is actually down nearly 10% since the spot Bitcoin ETFs started trading on Jan. 11. But don't worry -- the Bitcoin ETF investment thesis continues to evolve, and Bitcoin has one more major catalyst coming this year. Combined, could they be the rocket fuel needed to send Bitcoin skyrocketing?
Bitcoin ETF investment thesis: The sequel
The frustrating part about the original Bitcoin ETF investment thesis is that the price of Bitcoin didn't immediately surge in January. While the new Bitcoin ETFs appear to be an early success, all the new buying by Wall Street investors hasn't pushed up the price of Bitcoin. If anything, it looks like investors just moved money around from one Bitcoin investment product to another Bitcoin investment product, with little or no real change to their overall Bitcoin exposure.
Image source: Getty Images.
So, as you might expect, we're already seeing an evolution of this original thesis. At the end of January, Ark Invest released its new "Big Ideas 2024" report. In it, the investment firm included a super-bullish update to how much Bitcoin it thought investors should optimally allocate to their portfolios. Instead of its previous guideline of 6.2%, it now suggested a much higher optimal Bitcoin allocation of 19.4%.
That's a radical change, and it also leads to some radical price targets for Bitcoin. According to Ark Invest, if you use the 19.4% assumption, and apply it to the world's total investable asset base of $250 trillion, then you can arrive at a $2.3 million price target for Bitcoin. In essence, this would be a world in which every investor has gone wild for Bitcoin. Imagine not just huge Wall Street institutional investors, but also huge sovereign wealth funds, moving one-fifth of their assets into Bitcoin.
Obviously, just how high Bitcoin can go this year depends a lot on how much of their portfolios investors are willing to allocate to crypto. If you assume that 1% remains the general rule of thumb for most investors, then getting to $100,000 might be harder to reach than originally anticipated. But if you're willing to turn the dials and move that allocation percentage up to 5%, 10%, or even 20%, then Bitcoin could go absolutely stratospheric.
The Bitcoin halving
But the Bitcoin ETF story might not be the biggest story of the year for Bitcoin. The much-anticipated Bitcoin halving is coming in April, and it could unlock a tremendous amount of value for the cryptocurrency. There have been three previous Bitcoin halvings (in 2012, 2016, and 2020), and each one has led to spectacular rallies. The 2020 halving, for example, led to Bitcoin eventually reaching its all-time high of almost $69,000.
So will we see another all-time high for Bitcoin? Obviously, past performance is no guarantee of future performance, so it's risky to assume that Bitcoin is going to skyrocket again this time around. Moreover, keep in mind that it can take anywhere from 12 to 18 months for all the halving gains to take place. That means that we may not see the true extent of the Bitcoin halving rally until sometime in 2025.
But, as in the case of the Bitcoin ETF investment thesis, the Bitcoin halving thesis seems to make a lot of sense. In a halving, the mining reward paid out to Bitcoin miners for adding a new block to the Bitcoin blockchain falls by one-half. This has two important consequences. First, it boosts the relative scarcity of Bitcoin. Second, it makes Bitcoin more deflationary over time. Both of these results should make Bitcoin more attractive to investors over the long haul.
What could possibly go wrong?
My primary concern is that, as Bitcoin goes increasingly mainstream, it will start to behave differently than it has in the past. For example, take Bitcoin's famous (some might say infamous) volatility. With so many institutional investors deciding to buy Bitcoin for their portfolios, and many of them adopting a buy-and-hold strategy, it's not out of the question that Bitcoin will become less volatile over time.
This reduction in volatility is fantastic if you want a nice, safe investment that you don't have to check on every 24 hours. But it's lousy if you want the types of rocket ship moves required to get to a price like $100,000 or higher.
As a result, I'm starting to recalibrate my expectations for Bitcoin. I'm expecting it to become less volatile over time. And, as it goes mainstream, I'm expecting it to become more correlated with traditional asset classes. Combined, this might lead to less aggressive price swings for Bitcoin than we've seen in the past. That being said, however, I'm still long-term bullish on Bitcoin, which I still think has a chance to break through the $100,000 mark by the end of this year.
