Several billionaire hedge fund managers in the third quarter added to their positions in the iShares Bitcoin Trust (IBIT +1.05%), an exchange-traded fund (ETF) issued by BlackRock that tracks the price of Bitcoin (BTC +0.45%). Details are provided below:
- Israel Englander of Millennium Management bought 12.6 million shares of the iShares Bitcoin Trust, increasing his stake by 116%. The BlackRock fund is now his eighth largest holding excluding options.
- Paul Tudor Jones of Tudor Investment bought 3.5 million shares of the iShares Bitcoin Trust, increasing his stake by 409%. The BlackRock fund is now his third largest holding excluding options.
- Steven Schonfeld of Schonfeld Strategic Advisors bought 1.2 million shares of the iShares Bitcoin Trust, increasing his stake by 30%. The BlackRock fund is now his fourth largest holding excluding options.
Importantly, those trades took place in the third quarter, which ended several months ago. The fund managers may have added or sold shares since then, but we won't know what action they took in the fourth quarter until Forms 13F are filed later this month.
However, the trades above still suggest institutional investors are increasingly interested in Bitcoin. Certain Wall Street experts think that trend will ultimately make the cryptocurrency much more valuable.
NASDAQ: IBIT
Key Data Points
Some Wall Street experts anticipate huge gains for Bitcoin holders
Bitcoin more than doubled in the past year amid a flurry positive developments, including the approval of spot Bitcoin ETFs like the iShares Bitcoin Trust, and expectations that President Donald Trump will usher in positive regulatory changes. Bitcoin currently trades at $97,000, but the Wall Street experts below think that number is headed higher:
- Gautam Chhugani at Bernstein thinks Bitcoin could reach $1 million by 2033. That implies about 930% upside from its current price.
- Cathie Wood at Ark Invest thinks Bitcoin could hit $3.8 million by 2030. That implies about 3,815% upside from its current price.
- Michael Saylor, executive chairman at MicroStrategy, estimates Bitcoin's price will land between $3 trillion and $49 trillion by 2045. That implies 2,990% to 50,415% upside from its current price.
Importantly, the price targets above imply equivalent upside in the iShares Bitcoin Trust. Of course, investors should always treat forecasts with skepticism, especially when they promise enormous gains. But there are compelling reasons to believe Bitcoin will be more valuable in the future.
Spot Bitcoin ETFs are driving demand among institutional investors with trillions in assets
Last year, the Securities and Exchange Commission (SEC) approved spot Bitcoin ETFs in what many analysts called a turning point for the cryptocurrency industry. Those funds let investors add Bitcoin exposure to their existing brokerage accounts, while eliminating the complexity and high fees associated with cryptocurrency exchanges.
For instance, the iShares Bitcoin Trust has an expense ratio of 0.25%, and that fee is assessed annually. But Coinbase charges between 0.4% and 0.6% per transaction under $10,000. That means investors get hit by transaction fees twice, once when they buy and again when the sell.
In short, spot Bitcoin ETFs are a cheap and easy form of Bitcoin exposure, and that value proposition could encourage more institutional investors to participate in the market. I've already discussed three hedge fund managers with large positions in the iShares Bitcoin Trust, but other institutions are allocating capital to the cryptocurrency, too.
Bitwise CIO Matt Hougan recently wrote, "Bitcoin ETFs are being adopted by institutions at the fastest rate of any ETF in history." That matters because institutions have about $120 trillion in assets under management. Even a fraction of that total invested in Bitcoin could push its price much higher. Indeed, BlackRock CEO Larry Fink says Bitcoin could hit $700,000 if institutions put 2% to 5% of their assets in the cryptocurrency.
Image source: Getty Images.
Positive regulatory changes could further encourage institutional adoption of Bitcoin
President Donald Trump on Jan. 23 signed an executive order aimed at strengthening U.S. leadership in digital financial technology. The directive established a working group tasked with evaluating the creation of a national digital asset stockpile, which would position the government as a buyer of Bitcoin.
Meanwhile, the SEC formed a cryptocurrency task force to develop "a comprehensive and clear regulatory framework" for digital assets. Certain industry observers argue the agency regulated cryptocurrency through enforcement under former Chairman Gary Gensler rather than providing rules. So, regulatory clarity could further legitimize Bitcoin and encourage institutional adoption.
Bitcoin is a volatile asset best avoided by risk-averse investors
While I doubt Bitcoin will soar 50,000% in the coming years, tailwinds from spot Bitcoin ETFs and positive regulatory changes could certainly make the cryptocurrency much more valuable. However investors should consider the risks before buying.
Bitcoin has been a very volatile asset in the past. Its price has fallen more than 50% from a record high three times in the last five years. And similar volatility is likely in the future. Consequently, Bitcoin is best avoided by risk-averse investors.
Additionally, Bitcoin has recently shown a high degree of correlation with the U.S. stock market, meaning its price has followed the ups and downs of domestic equities. That correlation is great when stocks are going up, but it means stock market declines can be twice as painful for anyone who also owns Bitcoin.
Investors comfortable with those risks should consider adding Bitcoin exposure to their portfolios. Buying a small position in the iShares Bitcoin Trust is a cheap and easy way to accomplish that.
