Risky assets generally perform better when interest rates are low. Therefore, speculation that persistent inflation will cause Federal Reserve policymakers to cut rates more slowly than anticipated has been a headwind for cryptocurrencies in recent weeks.

In fact, while Bitcoin (CRYPTO:BTC) hit a new record high of $73,000 in March, its price has fallen 7% since then to $68,000. However, several Wall Street analysts see substantial upside for patient investors.

• Tom Lee, managing partner and head of research at Fundstrat Global Advisors, believes that the combination of recently approved spot Bitcoin exchange-traded funds (ETFs), the recent halving of Bitcoin block subsidies, and the eventual easing of Monetary policy (lower interest rates) could take Bitcoin to $150,000 by 2025 and $500,000 by 2029. The latter figure implies a 635% increase from its current price of $68,000.

• Anthony Scaramucci, founder and managing partner of SkyBridge Capital, recently told CNBC that Bitcoin ETFs could boost the cryptocurrency beyond gold’s market capitalization, which is currently around $16 trillion. In this scenario, a single Bitcoin would be worth around $800,000, implying an increase of around 1,075% from its current price.

• Cathie Wood, CEO and CIO of Ark Invest, believes spot Bitcoin ETFs will eventually capture about 5% of institutional assets under management, driving the price of a single Bitcoin to $3.8 million. This estimate implies an increase of around 5,480% from the current price.

As a caveat, investors should never place too much confidence in price targets. They are simply educated guesses about what might happen in the future. That said, Bitcoin deserves further consideration given the tremendous upside implied by the price targets above. Here’s what investors should know.

The investment thesis for Bitcoin is simple

The price of Bitcoin It is based on supply and demand. However, as supply is limited to 21 million coins, demand is the most important variable. This means that the future trajectory of Bitcoin prices depends on whether demand increases or decreases from its current level.

Two recent developments could boost demand in the coming months and years. First, the Security and Exchange Commission (SEC) approved spot Bitcoin ETFs in January 2024. Second, the Bitcoin block subsidy was cut in half in April 2024.

Spot Bitcoin ETFs Could Bring Institutional Investors to the Market

Spot Bitcoin ETFs provide investors with direct exposure to Bitcoin through their brokerage accounts, meaning they do not need to create new accounts on cryptocurrency exchanges. Additionally, although spot Bitcoin ETFs charge annual fees expressed as an expense ratio, they are generally lower than the transaction fees charged by cryptocurrency exchanges.

The story continues

In short, spot Bitcoin ETFs reduce friction for both retail and institutional investors. When I say institutional investors, I mean professional money managers such as family offices, endowments, hedge funds, insurance companies and investment banks. Institutional assets under management (AUM) are forecast to reach $145 trillion by 2025, according to PwC. If even a small fraction of this total were allocated to Bitcoin, the price of the cryptocurrency could rise substantially.

As mentioned, Ark Invest believes that spot Bitcoin ETFs will eventually capture just over 5% of institutional AUM, implying around $8 trillion (based on PwC estimate). For context, we are nowhere near that number right now. Spot Bitcoin ETFs have about $57 billion in AUM, and most of that money came from retail investors.

However, US regulators only approved spot Bitcoin ETFs in January, and the early results are undoubtedly encouraging. O iShares Bitcoin Trust (NASDAQ: IBIT) by Black stone and the Wise Origin Bitcoin Trust Fidelity’s (NYSEMKT: FBTC) accumulated more assets in its first 50 days on the market than any other ETF in history, according to Bloomberg’s Eric Balchunas.

Additionally, Form 13F presented for the first quarter of 2024 show that a few hundred institutional investors purchased small positions in several Bitcoin ETFs in cash. This includes banks like JPMorgan Chase, US BankIt is Wells Fargoas well as highly profitable hedge funds like Citadel, DE Shaw and Millennium Management.

Halving of Bitcoin block subsidies should reduce selling pressure on miners

Bitcoin miners make money through block subsidies and transaction fees, collectively called block rewards. Block subsidies, which represent newly minted Bitcoin, are cut in half each time 210,000 blocks (groups of transactions) are validated and added to the blockchain, which happens once every four years.

The most recent halving took place in April 2024, when the block subsidy dropped from 6.25 BTC to 3.125 BTC. This was the fourth halving event since Bitcoin was created, and the implied reduction in selling pressure – miners will have less Bitcoin to sell over the next four years – bodes well for investors because it would equate to an increase in demand.

In fact, Bitcoin has experienced significant price appreciation following previous halving events.

Halving event

Bitcoin return (2 years later)

Data source: Fidelity Digital Assets.

Is Bitcoin a good investment?

Investors comfortable with risk and volatility should consider buying a small position in Bitcoin today, provided they have the right mindset. Cryptocurrency prices can rise and fall quickly, sometimes for seemingly absurd reasons, so investors should be prepared to hold their Bitcoin through ups and downs over a long period of time.

Furthermore, there is no guarantee that Bitcoin will reach the aforementioned target prices. For this reason, Bitcoin is best viewed as a component of a diversified portfolio.

Should you invest $1,000 in Bitcoin right now?

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Bitcoin, JPMorgan Chase, and US Bancorp. disclosure policy.

1 Top Cryptocurrency to Buy Before It Surges 635% to 5,480%, According to Some Wall Street Analysts was originally published by The Motley Fool

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