One of the most followed investors on Wall Street is Ark Invest Chief Executive Officer Cathie Wood. Wood has earned a reputation for being a fierce supporter of emerging technology trends in areas such as electric vehicles (EVs), artificial intelligence (AI), and genomics.
From time to time, Ark Invest releases research to the public -- providing investors with a glimpse of the data and work behind Wood's forecasts. Given her high interest in technology, it's probably not a surprise to learn that Wood is a proponent of Bitcoin (BTC +1.11%).
While she is not the only institutional investor heavily supporting Bitcoin, she is certainly one of the most bullish. Two weeks ago, Ark Invest released its annual Big Ideas report for 2024. One of the standouts from the presentation was Wood's latest outlook on Bitcoin.
Although she does not specify an exact timeline, Wood is calling for Bitcoin to reach a price of $2.3 million per token -- this represents more than 4,000% upside to Bitcoin's current price.
So, is now the time to pour money into Bitcoin? Let's dig into Wood's case, and assess whether Bitcoin is right for you.
CRYPTO: BTC
Key Data Points
A breakdown of Cathie Wood's latest take on Bitcoin
Bitcoin is unlike other asset classes such as stocks or bonds. Generally speaking, during times of economic instability, investors may consider alternatives such as real estate, art, or commodities such as gold.
Although crypto is a fairly nascent asset class, Bitcoin in particular carries some overlapping features with gold because both are considered scarce. For this reason, some view assets like gold or Bitcoin as a haven or store of value. In fact, some investors refer to Bitcoin as digital gold.
At a high level, Wood sees Bitcoin as an important component of portfolio structure in order to mitigate risk. However, the more important detail is how much weighting Bitcoin should represent in her view.
The table below illustrates Wood's proposed portfolio allocation:
| Asset Type | % Allocation |
|---|---|
| Gold | 40.7% |
| Equities | 30.3% |
| Bitcoin | 19.4% |
| Commodities | 9.6% |
| Bonds | 0% |
Source: Ark Invest Big Ideas Report 2024.
At an allocation of almost 20%, it's clear that Wood believes Bitcoin should be a prominent fixture in a diversified portfolio. In order to derive Wood's $2.3 million price target, there's a little more number crunching required.
According to Ark Invest, the global investable asset base stands at $250 trillion. In other words, this is the amount of money that could theoretically be deployed in the markets. Moreover, as I stated above, Bitcoin is a scarce asset, and only 21 million coins will ever enter circulation. As of now, roughly 19.6 million Bitcoins have been mined.
If you take Wood's proposed Bitcoin allocation of 19.4% and multiply by the $250 trillion investable asset base, she is calling for a total of $48.5 trillion to be allocated toward Bitcoin. If this sum were to buy up the 19.6 million Bitcoin currently in circulation, that would yield a price of about $2.3 million per token.
Now that the math equations are out of the way, you're probably wondering how likely this is.
Image source: Getty Images.
What could fuel more interest in Bitcoin?
Although the above analysis is entertaining, it's merely a fun exercise with numbers. The reality is that Bitcoin's price -- like other assets -- will be determined through the dynamics of supply and demand. Maybe a 19.4% allocation to Bitcoin could be viewed as too high, but I do agree with Wood that an enormous amount of money will be needed to significantly push the price of Bitcoin higher. For this to happen, I think more institutional ownership is required.
As it stands today, Bitcoin is still viewed as highly speculative. Crypto does not have as many use cases as traditional fiat currency, and the jury is out on whether Bitcoin and other coins are here to stay long term. However, there are some notable items to discuss which could spur more interest in Bitcoin from larger money managers.
Earlier this year, the Securities and Exchange Commission (SEC) granted approval for a number of spot Bitcoin exchange-traded funds (ETFs). The main purpose of these products is to track the performance of Bitcoin without requiring investors to invest directly in the coin.
If these vehicles are successful and garner significant interest, it is possible that larger investors will consider exploring crypto more deeply and potentially allocate some funds toward Bitcoin. As Wood's math demonstrates, the price of Bitcoin should rise meaningfully if this happens at scale.
Should you invest in Bitcoin?
I find Wood's Bitcoin forecast interesting and applaud her for sticking to her strong conviction. However, calling for a nearly 4,300% increase from Bitcoin's current price seems a little outlandish.
I do agree that over time, more institutional money will flow toward Bitcoin. But to me, the biggest question marks are how long it could take for Bitcoin to become accepted as mainstream, and even if it does, how much allocation the asset will represent in a portfolio.
The risk-reward dichotomy in owning Bitcoin can't be misunderstood. While there is a lot of money to be made, just as much can be lost. Although this can also be said about other asset classes such as stocks, Bitcoin simply does not have the same features.
Unlike a stock, Bitcoin does not produce earnings or cash flows, pay dividends, or have a management team with a strategy. There isn't even a clear regulatory framework. It truly is a decentralized, high-risk investment choice.
Given the amount of uncertainty around Bitcoin, investors should think long and hard before going into the coin or the crypto market in general -- no matter what the potential upside looks like.
