Bitcoin (BTC -0.04%) has been a major disappointment for investors over the past five years. While many tech stocks have soared thanks to artificial intelligence, Bitcoin has lagged. The cryptocurrency is up just 40% over the past five years, compared to the S&P 500's (^GSPC -0.17%) gains of about 74%.
While a couple of catalysts could push Bitcoin higher over the next five years, I think investors should expect more uncertainty. Here's why.
A couple of bullish catalysts for Bitcoin
I think there's a chance that if the U.S. enters a recession -- or another economic environment that brings uncertainty -- over the next five years, some investors could shift money into Bitcoin to protect their capital.
Research from Charles Schwab shows that Bitcoin's value has increased during periods of financial instability. For example, during the 2023 regional bank crisis, in which four banks failed, Bitcoin's value spiked as investors sought a haven. Before the bank failures, Bitcoin was on a downward trend.
The total amount of Bitcoins is capped at 21 million -- of which 20 million already exist -- and that's a draw for some investors who believe the cryptocurrency is a good alternative to gold. Of course, there's no guarantee Bitcoin will gain momentum again if a difficult economic environment emerges, but there is some precedent.
The second bullish catalyst could come from broader institutional adoption, leading to greater Bitcoin ownership among retail investors.
Morgan Stanley's head of digital asset strategy, Amy Oldenburg, recently said Bitcoin is still in the very early stages of institutional adoption. She thinks that as more financial firms move into crypto, Bitcoin's price will rise. And if a major catalyst emerges in the coming years, she believes it could eventually reach $1 million. That would be quite a feat to pull off, considering Bitcoin's price is currently only about $63,500.
But Oldenburg could be right about her long-term optimism, even if she gets the Bitcoin value wrong. Bitcoin has experienced several severe price declines since its debut and has almost always rebounded significantly.
And Oldenburg has a first-hand account of its appeal among investors. Morgan Stanley's Bitcoin ETF already has more than $400 million in assets despite launching just four months ago. If that's an early indication of demand for crypto ETFs, Bitcoin's price could go higher.
CRYPTO: BTC
Key Data Points
Bitcoin no longer has this advantage
I think one of the biggest things that will hold Bitcoin back over the next five years is AI stocks. Before artificial intelligence investing came along, investors had to invest in speculative cryptocurrencies, including Bitcoin, if they wanted a potentially significant return over shorter periods.
But over the past several years, investors bought shares of rapidly accelerating semiconductor stocks and AI hyperscalers and reaped the rewards. And even the recent volatility in some AI stocks hasn't erased the very impressive gains. For example, Micron Technology, a leading memory chip company, is up more than 1,200% over the past three years.
And many AI stocks are very profitable, with revenue continuing to rise. Bitcoin and other cryptocurrencies can't compete with companies that sell real products and services -- with sales and earnings -- and that have surging share prices to boot.
As such, I think Bitcoin's price increases may not be that impressive over the next five years, as long as the AI investment boom persists.
