Cathie Wood and her team at Ark Invest focus exclusively on disruptive technology. And one of the biggest disruptors of the past 15 years is Bitcoin (BTC +1.49%) and the idea of a blockchain.
Bitcoin opened the door for developers to create numerous cryptocurrencies with varying degrees of utility. However, Wood and her team believe there's still a lot to like about the original cryptocurrency. They see several catalysts that could drive the price of Bitcoin higher.
The biggest factor that could push Bitcoin's price higher in 2024 is adoption by institutional investors. Ark believes that if the $250 trillion in global investable assets allocated an optimal amount to Bitcoin, it would send the price of the cryptocurrency to $2.3 million. That's a 4,500% increase from the price today, around $52,000.
Bitcoin belongs in every portfolio, says Cathie Wood
Bitcoin has proven to be a good diversifying asset for investors over the past few years. It exhibits moderate price correlation with equities and even less correlation with other asset classes. In other words, the price of Bitcoin isn't tied closely with price fluctuations in other assets like stocks or bonds. As such, Ark Invest argues, it belongs in investment portfolios to maximize risk-adjusted returns.
Ark's analysts found the optimal exposure to Bitcoin in 2023 to maximize risk-adjusted returns would have been 19.4% of a portfolio. If that percentage of all the investable assets in the world flowed into Bitcoin, the cryptocurrency would have a market cap of around $48.5 trillion. Its current market cap hovers around $1 trillion. Factor in the slowing increase in Bitcoin supply from continuing mining, and you get a price of $2.3 million.
It's important to note Ark's optimal portfolio allocations may be a bit skewed, as they're backward-looking. While looking to the past for an idea of historical norms can be valuable, investors should also consider whether the past is a good representation of the future based on the current state of financial markets and other macroeconomic factors. After climbing 150% in 2023, Bitcoin might not offer the same risk/reward profile it did at the start of last year.
CRYPTO: BTC
Key Data Points
Ark offers some more reasonable global asset allocations for Bitcoin. The average optimal allocation for Bitcoin at the start of each year since 2013 is 4.8%. If investment managers target that number, Bitcoin's price should rise to about $550,000. If investors allocate just 1% of their portfolios to Bitcoin, Ark sees the price climbing to $120,000, which is still more than double today's price.
Importantly, it's now easier than ever for institutional investors to add exposure to Bitcoin. The launch of spot Bitcoin exchange-traded funds (ETF) in January, including Ark's own Ark 21Shares Bitcoin ETF (ARKB 1.55%), provides an easy way to manage Bitcoin in a portfolio. It could also open the door for investors to add exposure in retirement accounts like IRAs and 401(k)s.
That could be just one of several major catalysts for driving demand for the limited supply of the cryptocurrency.
Now's the time to buy Bitcoin
On top of the increased ease of adding Bitcoin to a portfolio through spot ETFs, Ark sees a couple more reasons we may be at the start of another bull market for Bitcoin.
First, a technical indicator Ark created called the on-chain market mean shows Bitcoin's price climbing above the indicator's threshold level late last year. Historically, breaking above the on-chain market mean has signaled the early stages of a bull market.
Another catalyst is the halving later this year. The block reward paid to miners for successfully confirming a block will go from 6.25 Bitcoin to 3.125 Bitcoin, probably in April. That will slow the rate of growth in Bitcoin's supply. The last halving in May of 2020 coincided with a bull market.
Ark Invest stresses the importance of maintaining a long-term outlook for Bitcoin investors. "Instead of 'when,' the better question is 'for how long?'" they write. They point out that holding Bitcoin for at least five years has resulted in profits for any investor throughout history. That said, Bitcoin is still trading below the highs it set in 2021.
While Ark's $2.3 million price target may be very aggressive, it's not unreasonable to expect Bitcoin to climb higher from here. Given the catalysts of the spot Bitcoin ETFs driving demand among a wider group of investors and the slower rate of supply growth from the upcoming halving, there could still be room for the current bull market to run.
