Bitcoin (BTC 1.60%) is back in the zeitgeist. For better or worse, the leading cryptocurrency is gaining popularity once again after seeing a massive price increase in 2024. After rising around 140% year to date (YTD), the price of Bitcoin has now broken through $100,000. Companies like MicroStrategy are buying up Bitcoin for their balance sheets, while the incoming Trump Presidential administration is talking about building a Bitcoin strategic reserve.
The narrative around Bitcoin is extremely bullish at the moment. Smart investors understand that this has happened before. In 2013, 2017, and 2021, investors got increasingly optimistic about Bitcoin right before a price crash. Is the cryptocurrency setting up for another crash in 2025? Let's take a closer look at Bitcoin as we sit here in December 2024, and whether the cryptocurrency belongs in your portfolio today.
2024's dazzling rise
The skyrocketing rise of Bitcoin in 2024 can be boiled down to two influences. First, we have the approval of Bitcoin and cryptocurrency exchange-traded funds (ETFs) in January. Bitcoin ETFs have purchased tens of billions of dollars' worth of Bitcoin for clients this year, showing the demand for these products in the financial world. If you include MicroStrategy and its Bitcoin buying spree, there have been close to 700,000 Bitcoins purchased by institutions so far in 2024. That is 3.3% of the 21 million Bitcoins that will ever exist.
After the approval of Bitcoin ETFs, the price of the coin shot up to over $60,000. It then hovered around this level until the United States presidential election around a month ago. With Donald Trump's victory, investors became even more bullish about the price of Bitcoin. The incoming administration has discussed building a Bitcoin Strategic Reserve, meaning that the United States government would buy and hold a significant amount of Bitcoin. While I can't say I approve of my tax dollars getting used in this manner, this reserve should have a positive effect on the price of Bitcoin. Since the election, the price of Bitcoin has soared close to 50% and sits at around $106,000 as of this writing.
See, Bitcoin is not an asset that has underlying earnings power. With a fixed supply of digital tokens, Bitcoin only goes up if more and more people are convinced they should own it. With institutional funds and political promises pouring fuel on the fire, it's no surprise that Bitcoin's price has exploded through $100,000 in late 2024.
CRYPTO: BTC
Key Data Points
Price predictions and gold comparisons
Bitcoin price predictions vary greatly. Some investors think that it is headed to $1 million a coin, or even $13 million. Others say it is worth zero. What is constant among these price predictions is the direction lining up with what would make the predictor wealthier. MicroStrategy CEO Michael Saylor is the one with a $13 million price target.
Some investors look at Bitcoin as digital gold, believing it will eventually supplant that historical store of value in market value. Today, gold has an estimated market cap of around $18 trillion (it is not clear how many ounces are actually owned, so this is an estimate). Using the 21 million Bitcoin count, an $18 trillion market cap for Bitcoin equates to a Bitcoin price of $857,000, or around 8x the current price. This may keep investors bullish on the cryptocurrency.
Uncertainty is the only certainty
Discussions around Bitcoin are endless. I find them tiresome and circular. The frank truth is that nobody knows whether Bitcoin will crash, flatline, or soar in 2025. If someone claims to be certain about Bitcoin's price movements, they are not being truthful, even if they end up looking correct. Anyone can predict things with confidence. I can tell you a dice is "guaranteed" to land on six before you roll it, with a one in six chance of looking right. That doesn't warrant my confidence about the odds of the dice roll.
You should look at Bitcoin in the same way. Feel free to own it if you believe in the long-term thesis around digital gold, currency adoption, or anything else. But don't trade the cryptocurrency in the mistaken certainty that Bitcoin's price certainly will soar or crash in 2025. The only true certainty is uncertainty when it comes to cryptocurrency and Bitcoin.
