Cathie Wood has become a popular figure in the investment world in recent years because of how her firm, Ark Invest, focuses on the most innovative and disruptive businesses. The asset manager offers many different exchange-traded funds that investors can choose based on their interests. Additionally, Wood gets a lot of attention because of her bold predictions.
It's not necessarily surprising that cryptocurrencies are on Wood's radar, simply because of the potential for blockchain technology. There's one top digital asset that Wood and her team are incredibly bullish on. In her firm's updated bull case scenario, there is 2,200% upside between now and 2030. Here's what you need to know about this cryptocurrency.
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Breaking down Cathie Wood's thesis
Investors should understand the thinking behind Wood's noteworthy prediction, which concerns Bitcoin (BTC 1.53%), the world's most valuable cryptocurrency. At a high level, the thesis is fairly straightforward. It mainly centers on Bitcoin being owned by more market participants in some form or fashion.
For instance, Ark Invest thinks Bitcoin will become a more popular holding for institutional investors. The bull case estimates 6.5% of the assets in these portfolios find their way to Bitcoin.
The view also includes Bitcoin being adopted as a form of digital gold, which might be the most popular way that the crypto is perceived today. Both are discussed side by side because they are scarce assets that are global in nature and that have no counterparty risk.
Another key contributor to the thesis is that citizens in emerging markets will start to convert more of their local currency holdings into Bitcoin. Owning Bitcoin, despite its volatility, makes sense for people who live in unstable economies that deal with political corruption and that experience inflationary pressures.
On the morning of June 20, Bitcoin's price was $104,270. Ark Invest's 2030 bull case has a price target of $2.4 million. That translates to unbelievable upside of about 2,200%, or a compound annual rate of 69%. In the past five years, Bitcoin's price has climbed at a yearly pace of 27%. So clearly, Wood and her firm could not be any more optimistic about Bitcoin's potential throughout the rest of this decade.
Take predictions with a grain of salt
The average investor can easily find themselves hanging onto every word Wood says. After all, who wouldn't like to see an asset rise 23 times in price? This could generate serious wealth for investors who have the same view.
But it's important that all price predictions are taken with a grain of salt. No one has any idea how things will eventually look. That's particularly true with something like Bitcoin that is still pretty early on with its adoption and development curve. Moreover, there remain technical risks, as well as uncertainty around how regulations will evolve.
Investors shouldn't blindly follow what a prominent professional investor says. It's worth taking the time to build your own conviction. With that in mind, I believe there is one very important factor that makes Bitcoin a compelling asset to own for the long haul.
The top characteristic is that there is a fixed supply cap, with a maximum of 21 million Bitcoin units that will ever be in circulation. This is written in the Bitcoin software, and it's agreed upon by all nodes. Furthermore, the cap is enforced by a halving, which reduces the new supply of Bitcoin that's mined on a roughly four-year schedule.
It's easy to be bullish on Bitcoin and its hard supply cap when looking at the current state of the financial system. The M2 money supply has absolutely skyrocketed in the past two decades, driven by stimulative measures by central banks that lead to rising debt levels. There is no end to this trend.
I believe long-term investors with a time horizon of at least a decade should have some Bitcoin exposure. However, I don't think the digital asset's price will reach Wood's target by 2030. It's more realistic to expect the gains going forward to be less than the past. Even in this scenario, there is sizable upside.
