One of the things that attracts many investors is that cryptocurrency That’s the potential for rapid and staggering price increases.
for example, Bitcoin (Cryptocurrency: BTC) It rose 164% in the six months from October 2023 to April 2024. And while the major cryptocurrencies have been trading roughly flat since then, some analysts are predicting further significant price increases in the coming months.
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Bernstein analysts recently released a report detailing their prediction that Bitcoin will reach $200,000 by the end of 2025, calling this a “conservative” outlook. This is about 180% higher than the current price.
Bernstein is bullish on Bitcoin for several reasons.
The biggest factor behind the 164% rise in the price of Bitcoin was the introduction of spot trading. Bitcoin Exchange Traded Fund (ETF). In January, the Securities and Exchange Commission approved 11 ETFs that invest directly in Bitcoin. The new ETF makes it much easier to invest in Bitcoin by allowing you to purchase the ETF with your regular brokerage account.
More than $20 billion has flowed into Bitcoin ETFs so far. However, there is still a long runway. Most of these inflows have come from retail rather than institutional investors. Bernstein expects further adoption by institutional investors as they develop strategies to address the liquidity and volatility risks associated with Bitcoin. Greater regulatory clarity around Bitcoin could also give institutional investors the confidence to increase their exposure to the cryptocurrency.
As more financial institutions move a portion of their portfolios to Bitcoin, demand for the cryptocurrency will increase significantly, driving up its price. Analysts at Ark Invest, led by Cathie Wood, predict that if institutions allocate 1% globally to Bitcoin, it could push the price to $120,000.
As a result of continued inflows and rising Bitcoin prices, Bernstein expects the assets accumulated by Bitcoin ETFs to more than triple from approximately $60 billion to $190 billion by the end of 2025. There is.
At the beginning of this year, Bitcoin underwent a new halving. This is when the reward for mining new coins is cut in half. In fact, Bitcoin has historically risen after every halving, so this was another reason for the price spike at the start of the year. As of now, that run-up hasn’t happened yet, but that doesn’t mean it won’t happen eventually.
Bitcoin price is based on the law of supply and demand. If Bitcoin halves, its supply will increase more slowly. Additionally, Bernstein’s report notes that the number of Bitcoins miners are selling to the market is also decreasing. Miners are required to liquidate at least a portion of the Bitcoins they mine to cover operating costs.
Importantly, if the marginal cost of mining falls below the value received over an extended period of time, miners cannot continue operating. The marginal cost of producing Bitcoin increases when it is halved. Bernstein estimates that prices will reflect 1.5 times the marginal cost of production from 2024 to 2027. This translates to $200,000 in 2025 prices.
The factors outlined by Bernstein analysts are solid reasons to expect Bitcoin’s price to rise over time. We expect the halving and increased institutional adoption to slow supply growth, reduce selling pressure and increase demand over the next few years. Whether everything will reach $200,000 per Bitcoin by the end of next year remains to be seen, but perhaps Bernstein is at least correct on the direction.
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Adam Levy I have a position in Bitcoin. The Motley Fool has a position in and recommends Bitcoin. The Motley Fool has Disclosure policy.
1 Unstoppable cryptocurrencies to buy before they soar 180% by the end of 2025, according to one Wall Street analyst Originally published by The Motley Fool
