It's no secret that Cathie Wood's growth investing mastery expects great things from Bitcoin(CRYPTO: BTC). Fund manager Ark Invest started talking about crypto before it was a household name, and has recently doubled down on its bullish projections again.
In a Bloomberg TV interview last Thursday, Wood reiterated Bitcoin's price target of $1.0 to $1.5 million by the year 2030. But that's not the whole story. The great part of Cathie Wood's Bitcoin comment is that she continues to explain her investment thesis in more detail over time.
Last week's interview was no exception. So let's take a look at Cathie Wood's latest nuggets of Bitcoin-friendly economic theory.
First, Wood noted that the probability of reaching her current Bitcoin price targets has increased in 2024. Institutional investors are finally taking digital assets seriously, with the help of new tools such as spot Bitcoin exchange-traded funds ( ETFs) launched in January. Their Bitcoin investments should make a big difference to the price and stability of the asset over the next few years.
“(Big investors) have to consider allocation” these days, because there is a hard cap on Bitcoin production in the long term.
94.3% of all Bitcoin that will ever exist has already been generated and is sitting in crypto wallets around the world. You can't grab a big piece of the total Bitcoin pie by making or finding more of it like one might do with physical assets like gold or oil. The ironclad law of supply and demand should inevitably drive the price of this finite asset higher, so financial institutions should start building their Bitcoin portfolios before it gets expensive.
In this context, $100,000 per coin It does not qualify as “expensive.” Remember, the long-term target price is measured in millions of dollars. Cathie Wood is playing the long game here.
Wood also explained that Bitcoin is more than a speculative asset. Rather than the next worthless “tulip bulb craze,” Bitcoin serves a significant purpose for people who don't expect it to only gain value over time.
“It's a rules-based global financial system,” he said. “It's private, it's digital, it's decentralized, and it's backed by the largest computer system in the world. It's the most secure network in the world.”
Bitcoin is like a global and very detailed accounting system that tracks all the gold in the world, assigning an owner to each slip of gold nugget and protecting the data with several layers of cryptography. You cannot cancel or change any transactions or ownership records without essentially breaking Bitcoin's transaction recording platform. The asset being tracked in this case is not a physical piece of precious metal, but the computer work that went into producing a unique digital token.
There is an unknown but very real limit to the amount of physical gold in the world, until entrepreneurs find additional sources on asteroids or other planets. At the same time, there will never be more than 21 million Bitcoin tokens, of which 19.6 are already in circulation. In the long run, this system is almost immune to inflation — assuming its security holds up against new attack ideas such as quantum computing algorithms.
Cathie Wood takes the mystery out of her investment thesis for Bitcoin. Image source: Getty Images.
Cathie Wood also highlighted how this anti-inflation method differs from gold.
“When the gold price goes up, production goes up – the rate of increase in supply goes up,” he said. “That cannot happen with Bitcoin. It is mathematically measured to go up 0.9% per year for the next four years, and then the supply growth will be cut in half again.”
In fact, physical gold mining tends to become more common when the price of the metal is high. Miners want to exploit this valuable asset when it makes the most economic sense. The equation is different for Bitcoin miners, who will produce smaller and smaller pieces of the digital asset over time. So the cost of minting new Bitcoins will increase while the number of new coins introduced to the market slows down.
So it's wiser to maximize production effort as soon as possible, because the returns on your mining machines and electric power investment will only shrink over the years. The same logic suggests that buying Bitcoin early will be more profitable in the long run. Waiting for a lower purchase price or an easier Bitcoin mining environment almost never makes sense.
So Cathie Wood underlined her 5-year Bitcoin target of at least $1 million per coin, and offered more details about her basic investment thesis.
Other Bitcoin investors may work with different assumptions that lead to varying target prices, but the overall tenor of the market is pretty consistent. Bitcoin looks poised to rise from the recent valuation milestone of $100,000. From big banks to ordinary nest egg builders, most investors should pay serious attention to these newfangled cryptographic tokens.
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