For more than a century, the average annual return for stocks has stood head-and-shoulder above the annualized returns for Treasury bonds, housing, gold, and oil. But over the past decade, cryptocurrencies have left equities in the dust.
Roughly 10 years ago, the combined value of all digital currencies in existence was about $8.4 billion, according to data provided by CoinMarketCap.com. As of this writing on March 23, 2024, the combined value of more than 2.4 million cryptocurrencies had reached $2.48 trillion. That's a compound annual growth rate of nearly 77% over 10 years!
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Cathie Wood's otherworldly price target for Bitcoin implies a $75 trillion valuation in six years
The outperformance of top-tier cryptocurrencies isn't lost on Wall Street or its pundits. While there have been some lofty price targets issued for the largest digital token by market cap, Bitcoin (BTC +0.48%), since it became a mainstream asset, none comes anywhere close to the prognostication offered by Ark Invest CEO and Chief Investment Officer Cathie Wood last week.
While speaking at the Bitcoin Investor Day Conference held in New York on March 22, Cathie Wood updated her and her firms' previous lofty forecast for Bitcoin following the Securities and Exchange Commission's (SEC) decision to approve 11 spot Bitcoin exchange-traded funds (ETFs). Said Wood:
Last year we put out our bull case for Bitcoin. It was $1.5 million. With this institutional green light that the SEC has provided, kicking and screaming though it did, the analysis we've done is that if institutional investors were to allocate a little more than 5% of their portfolios to Bitcoin, as we think they will over time, that alone would add $2.3 million to the projection I just gave you.
This $3.8 million Bitcoin target price by 2030 reflects upside of 5,855% from the $63,810 Bitcoin ended at when after-hours trading came to a close on Wall Street at 8 p.m. ET on Friday, March 22. It also implies that Bitcoin would have a market capitalization of well north of $75 trillion by the turn of the decade. For comparison, gross domestic product for the U.S. economy totaled about $27.4 trillion in 2023.
CRYPTO: BTC
Key Data Points
There's no question that Bitcoin has benefited from the SEC authorizing 11 spot Bitcoin ETFs in January. Instead of having to purchase Bitcoin on a cryptocurrency exchange that might lie overseas or outside the jurisdiction of U.S. regulators, investors now have the ability to gain exposure to Bitcoin by investing in ETFs that'll directly handle the purchase of tokens.
Additionally, Bitcoin is nearing a halving event, which has historically been a bullish for the world's most-valuable digital currency. In a matter of weeks, the block reward cryptocurrency miners receive for validating Bitcoin transactions will halve from 6.25 to 3.125 Bitcoin. This means the rate of inflation for Bitcoin supply in circulation will meaningfully slow. The perceived scarcity of Bitcoin is one of the primary draws for long-term investors.
Wood's Bitcoin price target might be the most ridiculous thing investors have ever seen
However, no number of first-mover advantages comes anywhere close to justifying a would-be valuation of $3.8 million for Bitcoin by the turn of the decade. Though I previously referred to Ark Invest's $2,000 price target on electric-vehicle maker Tesla by 2027 as "utter nonsense," Wood's price prognostication for Bitcoin blows Ark's Tesla prediction out of the water in terms of ridiculousness.
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To start with, Bitcoin has failed the real-world utility test. Despite being made a legal form of tender in El Salvador, most of the country's citizens aren't using tokens to pay for goods or send money. Based on a survey from Central American University, a whopping 88% of El Salvadorians didn't use Bitcoin in 2023, even with increased efforts by President Nayib Bukele to improve the token's utility.
Bitcoin's scarcity can also be called into question. Although its ceiling is capped at 21 million coins, computer code is the only thing that's holding this ceiling in place. Whereas something physical, such as gold, is genuinely limited by what can be found on Earth, consensus could always result in computer code being changed and more Bitcoin being created.
However, the biggest issue with Bitcoin is that the barrier to entry in the digital currency space is almost nonexistent, which has led to the world's largest cryptocurrency losing its competitive edge. Though Bitcoin is the largest cryptocurrency by market cap, other payment coins handily surpass it in terms of lower transaction fees and faster settlement. It's a first-generation blockchain that's been outdone many times over by third-generation blockchain networks.
Bitcoin is an asset driven by technical analysis and investor emotions that has a paper-thin real-world use case and has lost its competitive edge. To say that I don't believe Wood's price target will come anywhere close to reality would be an understatement.
