Last week was a wild ride for Bitcoin (BTC) investors. Bitcoin’s price fell as much as 40% off its all-time high, and on-chain analysis shows that most of the selling came from new account holders. Regardless, many well-respected financiers stay bullish on the investment thesis of Bitcoin.
Bridgewater Associates founder Ray Dalio revealed in his recent interview with Fintech Zoom that he holds Bitcoin in his portfolio. Why? His thesis is similar to many other analysts, where he points out that the U.S. dollar is on the verge of devaluation at a level last seen in 1971. Dalio said, “Personally, I’d rather have bitcoin than a bond.”
The relative value of Bitcoin versus gold is another indicator Dalio is watching. He estimates that the value of gold is about five times of Bitcoin, excluding government reserves and jewelry uses. “It’s about 80/20 right now in the world, so that’s something I’d watch, too. But I think those things probably are going to rise relative to bonds.” Those two reasons mentioned — Bitcoin as a deflationary asset and its relatively low adoption rate versus gold — are also the main thesis behind price targets set by well-known investors.
JPMorgan believes that a boost in institutional adoption of Bitcoin will be the biggest driver behind Bitcoin’s price appreciation. To prove its point, JPM spotlights the number of fund outflows from gold. Since mid-October, gold saw $20 billion in fund outflows versus $7 billion in fund inflows for Bitcoin over the same time period.
“Considering how big the financial investment into gold is, any such crowding out of gold as an ‘alternative’ currency implies big upside for bitcoin over the long term,” JPMorgan said.
As a result, the bank set a long-term Bitcoin price target of $130,000. JPMorgan warns that its price target relies on the idea that Bitcoin‘s volatility will converge with gold’s. The reason is simple. The bank believes the lower volatility will drive more institutional support. However, this may take time to happen. The three-month realized volatility for Bitcoin recently posted at 86%, versus just 16% for gold. So, that’s why JPMorgan said “the above $130,000 theoretical Bitcoin price target should be considered as a long-term target.”
Tom Lee: $120,000
After the recent Bitcoin sell-off, Wall Street strategist Tom Lee went on CNBC to reiterate his bullish year-end price target of $120,000 for Bitcoin. Lee, the co-founder and head of research at Fundstrat Global Advisors, said investors must be comfortable with the volatility of Bitcoin. “Bitcoin volatility is sort of systematic to the network itself, so I think anybody who buys bitcoin has to be aware it’s always going to be hyper-volatile. That’s the opportunity.”
As for his price target thesis, he believes that 2021 represents a similar setup to 2017 for Bitcoin: a parabolic rally that occurs after a halvening event. Bitcoin, of course, had a halvening event last year. Halvening events make Bitcoin a deflationary asset, where it will become more scarce as years go on. With the inflationary environment, Lee believes that Bitcoin is a rare store of value that is a counter against inflation.
Wave Financial: $400,000
Now, we are getting into super bullish territory. How does $400,000 per Bitcoin sound? Well, that’s the price the analysts at Los Angeles-based investment management company Wave Financial believes bitcoin could reach. Wave Financial uses a stock-to-flow ratio, which is primarily a gold valuation model. In fact, this ratio accurately predicted the movement of the Bitcoin price from $4,000 in March 2019 to about $50,000 in February 2021. The firm explains that the fact that this ratio works well on Bitcoin adds credibility to the thesis of Bitcoin being a digital gold.
In addition to its stock-to-flow model, Wave Financial agrees with Ray Dalio and points to the current financial environment. “Due to the pandemic, governments around the world are printing money to stabilize and boost the economy” and this is pushing investors toward digital assets as a safe haven.
Cathie Wood: $500,000
Cathie Wood wins the award as the biggest Bitcoin bull, as the founder of Ark Invest sets a whopping $500,000 price target for Bitcoin. Wood believes that the rise of central-bank digital currencies will add legitimacy to Bitcoin as a store of value, referencing China’s announcement of its own digital yuan. As a result, the legitimacy will boost institutional adoption. This is the heart of Ms. Wood’s $500K target because it is based on the scenario where all institutional asset managers allocate upwards of 5% of their portfolios to Bitcoin.
Wood said institutions have been boosting their exposure to the cryptocurrency recently, which looks like “the early days of institutions moving into real estate and emerging markets. They started out with a half a percent allocation, then [1%], and then 5% or thereabout seemed to be the right number.”
If it becomes a standard for all institutions to choose a mid-single-digit allocation to Bitcoin, the cryptocurrency could rise “to somewhere in the $400,000 to $500,000 range,” Ms. Wood said.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.