Bitcoin (BTC -0.82%) has been on fire in recent months. The cryptocurrency has soared 60% since the start of 2024 as investors have rotated back into risk assets amid signs of a strong economy. Bitcoin currently traded at about $70,000, and it has a market capitalization of more than $1.3 trillion. But Gautam Chhugani and Mahika Shapra at Bernstein see more gains on the horizon.
The analysts recently revised their year-end price target to $90,000, up from $80,000, due to the tremendous demand for spot Bitcoin exchanged-traded funds (ETFs) and the impact of the halving event anticipated next month. In a note to clients, Chhugani and Shapra said 2024 would be a "breakout inflection year" for the cryptocurrency.
Investors should never fixate on short-term price targets, but what the Bernstein analysts are suggesting is quite mild compared to other forecasts floating around. For instance, Cathie Wood of Ark Invest recently said a single Bitcoin could reach $3.8 million by 2030. That estimate is based on the idea that institutional investors will eventually allocate about 5% of their assets to the cryptocurrency.
In any case, if Chhugani and Shapra are correct in assuming Bitcoin will reach $90,000 in 2024, its market capitalization would increase almost $500 billion, bringing its total valuation to $1.8 trillion. Here's what investors should know.
CRYPTO: BTC
Key Data Points
Spot Bitcoin ETFs have already exceeded expectations
The Securities and Exchange Commission (SEC) received its first spot Bitcoin ETF application in 2013, but it didn't approve any of them until January. That decade-long process has forever changed the cryptocurrency market. Spot Bitcoin ETFs offer direct exposure to Bitcoin without the rigmarole of cryptocurrency exchanges and blockchain wallets. In other words, they make it much easier for retail and institutional investors to add Bitcoin to their portfolios.
To say the launch has been successful would be an understatement. Before approval, Bernstein analysts expected spot Bitcoin ETF inflows to reach $5 billion in the first half of the year and $10 billion in the second half. In other words, they anticipated $15 billion in total inflows throughout 2024. That would have been impressive, but what actually happened was jaw-dropping.
Specifically, BlackRock alone attracted $10 billion to its iShares Bitcoin ETF (IBIT -0.76%) during the first two months of trading. No ETF has ever hit that milestone faster, according to Bloomberg analyst Eric Balchunas. Additionally, the cumulative inflows across all spot Bitcoin ETFs have now exceeded $25 billion, meaning demand has already outstripped what Bernstein analysts expected for the full year.
The halving of Bitcoin mining rewards should boost demand
Bitcoin's supply limit of 21 million coins is central to the investment thesis because it creates scarcity and prevents inflation. That makes the cryptocurrency valuable in the same way that scarcity makes precious metals valuable. The supply limit is enforced through a periodic halving of mining rewards, an event that is coded into the Bitcoin protocol, according to Coinbase Global.
Here's how it works: Miners earn Bitcoin when they successfully validate transaction blocks and add them to the blockchain. The reward falls by 50% each time 210,000 blocks are completed, which happens about once every four years. The next halving is expected in mid-April 2024.
Nothing extraordinary will happen on the day mining rewards are halved. Nevertheless, the event is significant for investors because it should be preceded by reduced selling pressure. To elaborate, miners sell Bitcoin to fund their operations and earn a paycheck, but they will only have half as much Bitcoin to sell during the next four years.
The impact of past halving events is shown in the chart below. Bitcoin has always been more valuable 24 months later.
|
Halving Date |
Price At Halving |
Price 24 Months Later |
Return |
|---|---|---|---|
|
November 2012 |
$12.35 |
$376.15 |
2,946% |
|
July 2016 |
$647.11 |
$6,306.85 |
875% |
|
May 2020 |
$8,821.18 |
$31,026.93 |
252% |
Data sources: Coinbase, Cointelegraph, StatMuse, and YCharts.
History says Bitcoin will fall by 50% at some point
Bitcoin has created tremendous wealth since its inception in 2009, but the cryptocurrency has also been very volatile. Bitcoin has suffered three catastrophic meltdowns in the past seven years. It fell 83% between December 2017 and December 2018. It fell 53% between April 2021 and July 2021. And it fell 77% between November 2021 and November 2022.
What makes those meltdowns especially alarming is that Bitcoin hit a new record high before each one. In other words, Bitcoin has fallen more than 50% from a record high three times in the past seven years. Investors should be prepared for similar volatility in the future.
So could Bitcoin reach $90,000 this year? Sure, that outcome is certainly plausible, but it is by no means guaranteed. Investors should buy Bitcoin only if they are comfortable with risk and volatility, and only if they plan to hold the cryptocurrency for a few years.
