The so-called Magnificent Seven have been fantastic investments during the past five years, with all seven stocks outperforming the broader market. In fact, while the S&P 500 (^GSPC +1.04%) returned 97% during that period, every member of the Magnificent Seven at least doubled in value, and four more than tripled, as detailed below.
- Alphabet: 137%
- Amazon: 104%
- Apple: 285%
- Meta Platforms: 192%
- Microsoft: 278%
- Nvidia: 1,980%
- Tesla: 791%
The Magnificent Seven could continue to beat the market during the next five years. However, investors should still explore opportunities beyond those megacap companies. Diversification can reduce risk by spreading money across a greater number of assets and asset classes.
In particular, investors comfortable with volatility should consider Bitcoin (BTC +4.78%). The cryptocurrency returned 1,520% during the past five years, outperforming virtually every other asset class on the planet, including gold, commodities, real estate, bonds, equities, and emerging market equities, according to Ark Invest. Bitcoin also outperformed every member of the Magnificent Seven except Nvidia during that time.
More importantly, a reputable Wall Street analyst with a winning track record believes the best-known cryptocurrency could soar 635% in the next five years.
CRYPTO: BTC
Key Data Points
Tom Lee believes Bitcoin could hit $500,000 in five years
Tom Lee is currently a managing partner and the head of research at Fundstrat Global Advisors, but he previously served as chief equity strategist at JPMorgan Chase between 2007 and 2014. Lee's stock-picking product (Granny Shots) has more than doubled the performance of the S&P 500 since its inception in January 2019, which lends credit to his opinions.
With that in mind, Lee believes Bitcoin could reach $150,000 before the end of 2024 and $500,000 within five years. He explained his predictions in February during a CNBC interview, "You've got demand improving with the [spot Bitcoin] ETF, you have the supply shrinking with the halving, and if monetary policy eases, which we expect, you know that's supportive of risk assets."
Lee's five-year target echoes a prediction from MicroStrategy former Chief Executive Officer Michael Saylor, who said in 2022 that Bitcoin could reach $500,000 if its market capitalization comes to match that of gold. Saylor posited a timeline of a decade, but he made that prediction before the approval of spot Bitcoin exchange-traded funds (ETFs), which could be a game changer for the cryptocurrency.
In either case, a Bitcoin price of $500,000 implies 635% upside from its current price of about $68,000.
Two tailwinds could take Bitcoin higher during the next five years
The price of any asset is ultimately determined by supply and demand. Bitcoin is no different, though it does present a somewhat specialized case because its supply is fixed at 21 million coins, of which about 19.7 million already circulate. That quality has drawn comparisons to gold, another asset that derives value from scarcity.
So, demand is the most consequential variable where Bitcoin is concerned, and several indicators suggest demand is trending higher. For instance, monthly active addresses, new addresses, and transaction counts are rising, meaning more investors are engaging with Bitcoin and doing so more frequently. Additionally, the number of accounts with at least 0.1 bitcoin reached a new all-time high in December 2023, according to Fidelity.
Building on that, Lee mentioned two catalysts that could take Bitcoin demand to new highs in the future: spot Bitcoin ETFs and the halving of Bitcoin mining rewards in April. Investors should understand exactly how each catalyst could impact the cryptocurrency.
- Spot Bitcoin ETFs: In January, the Securities and Exchange Commission approved a wave of spot Bitcoin ETFs, funds that offer direct exposure to Bitcoin without the hassle of cryptocurrency exchanges and blockchain wallets. By reducing friction, those products could bring more retail and institutional investors to the market. That is especially true because some of the world's largest asset managers are ETF issuers, including BlackRock and Fidelity. In fact, the spot Bitcoin ETFs issued by those institutions saw more inflows during their first month on the market than any ETF that launched in the past 30 years, according to Bloomberg Intelligence.
- Bitcoin halving: The Bitcoin supply limit of 21 million coins is enforced by periodic halving. To elaborate, miners are rewarded with Bitcoin when they validate a block of transactions and add it to the blockchain. But the reward is cut in half every 210,000 blocks, which is about once every four years. The next halving event will take place next month, and it should boost demand in a roundabout way by reducing selling pressure. Specifically, miners will only have half as much Bitcoin to sell over the next four years. To that end, Saylor estimates that selling pressure will fall from $12 billion per year to $6 billion per year.
Investors should never take price targets for granted. No one can predict the future, and even the most intelligent analysts are wrong sometimes. That said, spot ETFs and the halving of mining rewards could certainly drive Bitcoin higher in the coming months and year, perhaps substantially so. Its price may even hit $500,000 at some point in the future.
However, investors should be aware of the risks. Bitcoin is much more volatile than most asset classes. It lost 76% of its value between November 2021 and November 2022, and a similar implosion is possible (if not probable) in the future. Investors comfortable with that type of volatility should consider diversifying their portfolios with a small position in Bitcoin.
