The price of Bitcoin (BTC 0.49%) has rocketed by 65% to about $68,000 since the beginning of 2024. But certain Wall Street analysts still see a substantial upside in the cryptocurrency.
Gautam Chhugani at Bernstein believes Bitcoin will reach $150,000 by mid-2025, implying that its price will soar by 120% (or $82,000) during the next 12 to 18 months. Similarly, Geoff Kendrick at Standard Chartered Bank believes Bitcoin could reach $200,000 by the end of 2025, implying that its price could soar by 194% (or $132,000) during the next 21 months.
Ultimately, cryptocurrencies are no different than any other asset. Their prices are a product of supply and demand. However, the total possible Bitcoin supply is limited to 21 million coins, and 19.7 million (94%) of them are already in circulation. That means demand is the most consequential variable where Bitcoin is concerned.
With that in mind, Chhugani and Kendrick believe two catalysts will turbocharge Bitcoin demand in the coming months: the recent approval of spot Bitcoin exchange-traded funds (ETFs) and the halving event next month.
CRYPTO: BTC
Key Data Points
Spot Bitcoin ETFs should bring more investors to the market
In January, the Securities and Exchange Commission (SEC) approved 11 spot Bitcoin ETFs, which differ from the Bitcoin futures ETFs that started trading in 2021. Specifically, spot Bitcoin ETFs track Bitcoin prices precisely because they invest directly in the cryptocurrency. Bitcoin futures ETFs do not track Bitcoin prices as precisely because they invest in futures contracts -- agreements to buy or sell assets at agreed-upon prices on predetermined dates.
Investors can see that dynamic in action by observing the performance of the ProShares Bitcoin Strategy ETF, the largest Bitcoin futures ETF. While Bitcoin gained about 200% since the start of 2023, the ProShares Bitcoin Strategy ETF is up only 123% in that period.
In short, spot Bitcoin ETFs reduce friction. They offer direct exposure to Bitcoin without the hassle of cryptocurrency exchanges and blockchain wallets. Instead, investors can effectively purchase Bitcoin through existing brokerage accounts and hold it alongside other assets in their portfolios. That convenience could bring more retail traders and institutional investors into the crypto market.
In fact, that seems to be happening already. The spot Bitcoin ETFs issued by BlackRock and Fidelity ranked as the two most successful ETF launches in history, according to Bloomberg Intelligence. They accumulated more assets during their first months of trading than the other 5,500 ETFs that launched in the past 30 years. That screams demand.
Looking ahead, Chhugani believes those products will lead to "unprecedented institutional adoption" of Bitcoin. That is particularly auspicious because PwC estimates that institutional assets under management will reach $145 trillion by 2025. If even a small fraction of that total is allocated to Bitcoin, its price could rocket much higher. In that context, Bitcoin reaching $150,000 by mid-2025 or $200,000 by the end of 2025 is a plausible outcome.
Bitcoin mining rewards will be cut in half in April 2024
As mentioned, the total supply of Bitcoin that can ever be mined is capped at 21 million coins. That feature has helped Bitcoin fans promote its reputation as a type of digital gold, simply because gold also derives value from its scarce supply. Halving events are part of the mechanism that enforces the Bitcoin supply limit.
Specifically, each time 210,000 blocks are added to the Bitcoin blockchain, the rewards miners get for validating transactions are cut in half. This happens about once every four years. The next halving is forecast to occur on April 16. That event should effectively boost demand by blunting selling pressure, simply because miners will have 50% less newly mined Bitcoin to sell during the next four years.
So far, Bitcoin has always gained value during the two-year period after a halving.
|
Halving |
Bitcoin Return (2 Years Later) |
|---|---|
|
November 2012 |
2,964% |
|
July 2016 |
922% |
|
May 2020 |
348% |
Data source: Fidelity Digital Assets.
The post-halving gains have diminished with each successive halving event because their impact on total supply has become less significant over time. For instance, the halving in November 2012 saw mining rewards fall from 50 Bitcoin to 25 Bitcoin, a much steeper drop in terms of the number of coins than the 25 to 12.5 cut that occurred in July 2016, which itself was much steeper than the 12.5 to 6.25 cut in May 2020.
In that context, the impact of next month's halving (which will cut mining rewards from 6.25 BTC to 3.125 BTC) will likely be smaller than previous halvings.
Bitcoin is best suited to risk-tolerant investors with long time horizons
Ultimately, no one knows what Bitcoin will be worth in the future. The targets of $150,000 and $200,000 outlined by Chhugani and Kendrick, respectively, are certainly plausible due to the catalysts I've discussed. But investors should never anchor themselves to such estimates.
Additionally, bear in mind that Bitcoin has been extremely volatile in the past. It lost more than 76% of its value during the last cryptocurrency market crash, and similar plunges are possible in the future. In that context, a long-term mindset is critical. Anyone who bought and held Bitcoin for at least five years has profited, regardless of when they made their purchases, according to Ark Invest.
Here's the bottom line: Patient investors comfortable with risk and volatility should absolutely consider allocating a small portion of their portfolios to Bitcoin, but they should not do so with the expectation of seeing triple-digit percentage returns by 2025. That may or may not happen. But Bitcoin has crushed the returns of virtually every other asset class -- including gold, commodities, real estate, bonds, equities, and emerging market equities -- during the past five years, and a similar outperformance during the next five years is possible.
