In less than two decades, Bitcoin (BTC 0.63%) went from being worthless to becoming a global asset that carries a market cap of $2.2 trillion, bigger than all but a handful of tech giants. It has clearly attracted the attention of important business leaders, politicians, and central bankers. And more investors are starting to think about allocating capital to it.
Where will this unstoppable cryptocurrency, which has soared 65% in the past 12 months (as of Oct. 21), be in one year?
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Here are the top catalysts to watch out for
Bitcoin has had many positive catalysts work in its favor during the past year, like a more accommodative regulatory backdrop since President Donald Trump took office, as well as more capital flowing into the incredibly popular spot Bitcoin exchange-traded funds (ETFs).
One major development has gotten maybe more attention than anything else when it comes to Bitcoin. That's the rise of Bitcoin treasury companies, most notably Strategy, which raises capital and use the funds to buy the coin. Regardless of whether investors think these businesses are good or bad for markets, they do introduce unique ways of providing access to Bitcoin for larger pools of capital.
Investors should keep paying attention to these trends in the near term. They will continue to have a big impact on Bitcoin.
During the next 12 months, though, perhaps nothing will matter more not only to Bitcoin, but to other risk assets, than the Federal Reserve's monetary policy. The central bank cut the fed funds rate by 0.25% last month, and projections indicate two more similar cuts are probable before the end of 2025. Lower interest rates can stimulate the economy and boost asset prices.
The M2 money supply of the four biggest economies (U.S., European Union, Japan, China) has expanded by 7% in the past year. This adds liquidity to the global financial system. Since the financial crisis, the M2 money supply of these four economies has skyrocketed. There's no doubt that this has helped drive the price of Bitcoin during that time. Greater liquidity has found its way to this relatively scarce asset.
Of course, an adverse situation, such as a severe recession, can rock the economy and cause investors to quickly lose confidence. In this scenario, people will likely move money out of investments like Bitcoin and put it into cash and cash-like instruments, which they view as safer options. There's certainly a chance that this happens by October of next year. That's because the worldwide economy might still be waiting to feel the full impacts of Trump's tariff and trade policies.
Nonetheless, it's easy to be optimistic. Bitcoin has definitely been a very volatile asset. But its track record speaks for itself.
CRYPTO: BTC
Key Data Points
It's rational to expect returns to come down in the future
Investors need to realize that it's difficult to make accurate predictions. There are so many factors at play. Plus, the most challenging aspect isn't necessarily figuring out what events will happen, but how market participants will react. The best thing we can do is to understand the present situation, while also using history as a guide to what the future might bring.
Bitcoin is a legitimate financial asset. It has buy-in from the U.S. president. The U.S., which is the world's dominant economy, is setting up a strategic Bitcoin reserve. The biggest names in finance are letting their clients invest in Bitcoin. Companies are trying new ways to gain exposure, as they don't want to risk being left behind. Bitcoin is here to stay. This provides downside protection.
Looking ahead, investors shouldn't expect Bitcoin's past returns to repeat. In the last five years, it has generated an annualized gain of 53%. I suspect the next five years will end up giving investors lower returns, but still much better performance than the stock market.
I wouldn't be surprised if Bitcoin's price is at least 25% higher one year from now, going from about $111,000 today to $139,000.
