It’s no secret that Bitcoin (CRYPTO: BTC) is capable of some truly eye-watering returns. Unfortunately, unless you were aware of the relatively obscure phenomenon in its earliest days, you may have missed the boat on gains in the ballpark of, say, 30,000% in a year like the one you saw from the summer of 2010 to the summer of 2011. But that doesn’t mean Bitcoin is done delivering serious growth.
Cathie Wood, the maverick head of Ark Invest and outspoken Bitcoin advocate, definitely believes the cryptocurrency has a long way to go. Wood is not shy about making bold predictions when it comes to Bitcoin’s future. Her latest sets a target of $3.8 million by 2030. That’s more than a 6,200% return from today’s price and a compound annual growth rate (CAGR) of about 130%.
$3.8 million is the best-case scenario for Cathie Wood, not the most likely
To be clear, Wood and her firm have laid out several targets and $3.8 million is the best-case, most bullish scenario. At the other end of the spectrum, Wood set a bear case target of just under $260,000, while her base case — albeit one that she describes as conservative — is nearly $700,000. Those would still both be great returns that far exceed what can generally be expected from other asset classes.
Over the last decade, the S&P 500 — a useful proxy for the broader stock market — returned an average of 12%, while gold returned just 5%. Of course, past performance is never a predictor of future performance, but it’s useful to have some historical context.
Here’s what would have to happen to hit Cathie Wood’s Bitcoin price target
Wood sees several possible sources of Bitcoin’s growth. Her single biggest factor is the view that Bitcoin is a digital form of gold. It’s becoming a store of value that can be used to hedge against inflation and currency devaluation. She sees a shift in sentiment. Bitcoin is moving from a speculative investment to a vehicle of wealth protection, pointing to the banking crisis of 2023 that saw a surge in money moving into Bitcoin. During times of crisis and uncertainty, people tend to move money out of what they see as risky assets and into safer ones.
Another major driver is institutional adoption. This was an important shift in the market over the last five years as major financial firms like BlackRock and Goldman Sachs began adding Bitcoin to their balance sheets. This trend is growing. Nearly 40% of international investors had at least some exposure as of last year, up from 31% in 2022, and the recent approval of spot Bitcoin ETFs, like Wood’s own ARK 21Shares Bitcoin ETF, is further accelerating the trend.
In her bear case, these are the only major factors. However, in the base case, additional drivers like adoption as a currency in emerging markets, use by global high-net-worth investors worried about asset seizure, use as a bank settlement network, and a few other factors, all help to boost the figure.
Her $3.8 target would require all of these with an especially aggressive buy-in from institutional investors. She believes if the firms, on average, allocate 5% of their portfolios to Bitcoin, it would be enough to drive the price all the way to $3.8 million.
So, is Cathie Wood’s Bitcoin target reasonable?
I will say that although it is certainly possible, the bull case is a pretty aggressive target and not particularly likely in my view. While 5% of global institutional capital being invested in Bitcoin might not seem like much, keep in mind that the vast majority of that capital is invested in stock-style equities and fixed-income assets like bonds. “Alternatives,” an umbrella term that includes everything from private equity to real estate, accounts for just 7%.
Meanwhile, while it’s difficult to put an exact number on it, 55% of the biggest institutional investors have less than 1% of their assets in Bitcoin today. That’s where most of the financial market’s capital is concentrated. Sixteen percent have no Bitcoin to speak of. It would represent a fairly seismic shift in institutional behavior to reach 5% by 2030 from this rock-bottom level of crypto interest.
That being said, I do think institutional buy-in will continue to grow, reaching a level that is more in line with Wood’s bear or even base cases, 1% and 2.5%, respectively. Most firms say they are looking to expand their Bitcoin investments in the years to come and as that trend continues, more risk-averse players will begin to dip in their toes. Regardless of the specific target Bitcoin reaches, I agree with Wood that Bitcoin is likely to far exceed the broader market in the years ahead.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Goldman Sachs Group. The Motley Fool has a disclosure policy.
1 Top Cryptocurrency to Buy Before It Soars 6,200%, According to Cathie Wood of Ark Invest was originally published by The Motley Fool
