There's been a growing sense of optimism around Bitcoin (BTC +1.42%) this year. The lead cryptocurrency set a string of new highs as confidence grew and institutional investment poured in. One big driver has been its potential as a form of digital gold -- a store of value in uncertain times.
However, last week the industry set a very different record. On Oct. 10, at least $19 billion in crypto was wiped out in what CoinGlass says was the largest liquidation in crypto history. Prices fell as markets reacted to the potential of new tariffs and trade kerfuffles with China. Although Bitcoin has recovered some of those losses since, it's understandable for investors to wonder where it might be heading next.
Analysts at Citigroup think Bitcoin has room to grow almost 60% in the next 12 months. Let's take a deeper look at this forecast.
Image source: Getty Images.
Citigroup analysts set $181,000 price target for Bitcoin
In an October report, Citi set a 12-month target of $181,000 for Bitcoin. The target represents a 57% upside from Oct. 12's close of $115,190. The team also slightly reduced its year-end expectations for Bitcoin from $135,000 to $133,000.
CRYPTO: BTC
Key Data Points
The analysts highlighted the popular cryptocurrency's potential to act as a form of digital gold, as well as significant inflows to Bitcoin exchange-traded funds (ETFs). The Securities and Exchange Commission (SEC) approved spot Bitcoin ETFs in January 2024, and they now hold more than $160 billion in assets. It isn't clear what impact the approval of other crypto ETFs will have on Bitcoin's dominance, which measures the coin's overwhelming weight in the crypto market.
In the near term, increased clarity and pro-crypto approaches from key regulators like the SEC could boost the cryptocurrency industry even further. Continued Federal Reserve rate cuts could also help, as they often increase investor appetite for risk.
But rate cuts can't be viewed in a vacuum. If cuts come alongside economic weakness -- including a slowdown in the jobs market -- investors may instead become more risk-averse.
Is Bitcoin digital gold?
The U.S. dollar index is down about 8.5% so far this year, which is one reason that gold and Bitcoin have both soared to new highs. Investors are looking for alternatives to try to protect their investments against both inflation and increasing global uncertainty. The difficulty is that Bitcoin hasn't yet lived up to its haven asset billing.
Cryptocurrency advocates have long trumpeted Bitcoin's potential as a form of digital gold. Bitcoin's scarcity, durability, and global recognition all support this argument. Similar to gold, only a fixed amount of Bitcoin will ever be produced. It is independent of central governments. Plus, it's easier to store and move around than gold.
However, Bitcoin is still a relatively new and volatile asset, with limited price history. The World Gold Council tracks gold prices back as far as 1970. Bitcoin was launched in 2009 and has only really started to be taken seriously as an investment in the past five years.
It is true that Bitcoin is maturing. In addition to increasing institutional demand, we've seen a boom in Bitcoin corporate treasuries as companies add crypto to their balance sheets.
Finally, several countries, including the U.S., have included the grandaddy of crypto in their reserves. Deutsche Bank predicts that Bitcoin will join gold in many central bank reserves by 2030.
Although dramatic price swings are still an issue, as demonstrated by last week's crash, Bitcoin is becoming less volatile. Deutsche Bank analysts point out that its volatility dropped to historic lows in August and suggests this will continue. Increased regulatory clarity and deeper liquidity will both contribute to improved price stability.
However, for Bitcoin to work as a haven asset or uncertainty hedge, it needs to behave more like gold than a tech stock. The jury's still out on this.
Take Friday's crash. It wasn't only the magnitude of it that spooked investors. More worrying was that gold prices rose while Bitcoin fell alongside stocks. That undermines the digital gold narrative -- and may pour cold water on various analyst predictions.
Viewing Bitcoin in the long term
This has been extraordinary year for the crypto industry, particularly Bitcoin. However, it is important not to allow its recent successes to create a false sense of security. Sure, Bitcoin is maturing and becoming more mainstream, but it isn't there yet. In the meantime, investment diversification is key.
If you're thinking of adding crypto to your portfolio, make sure it represents only a small part of your wider investments. Try to think beyond this year and consider what it might do in the coming five years or more. That may include increased institutional adoption and a stronger role as an international digital currency.
Citigroup's predictions are based on the top cryptocurrency's potential as a form of modern gold. Unfortunately, that's not yet a certainty. Right now, the high levels of risk and volatility still undermine its potential as a haven asset. We may look back and point to this year as a turning point for Bitcoin. But until we have the benefit of hindsight, it's important to manage the risks.
