This year has gotten off to a red-hot start in the markets. The euphoric narrative surrounding artificial intelligence (AI) has fueled the S&P 500 to record levels. Unsurprisingly, the tech-heavy Nasdaq Composite is moving in tandem and setting records of its own.
What investors may have missed, however, is that it’s not just stocks that are witnessing outsized enthusiasm. Top cryptocurrency Bitcoin (CRYPTO: BTC) has been surging as of late. Although the price of Bitcoin has, as always, fluctuated dramatically in the midst of its recent surge, one investor in particular sees massive upside.
Ark Invest Chief Executive Officer Cathie Wood recently set a price target of $2.3 million for Bitcoin, implying more than 3,600% upside from current trading levels.
Is now the time to buy Bitcoin? Let’s dig in and assess what could be fueling the newfound interest in Bitcoin and determine if cryptocurrency is a suitable investment option for you.
What is going on with Bitcoin?
The price of Bitcoin has risen 60% so far this year. On March 5, Bitcoin briefly set an all-time high, reaching a price slightly above $69,000.
It’s important to note, however, that following its brief peak, the price of Bitcoin fell by roughly 10%.
Nevertheless, Cathie Wood sees room for Bitcoin to keep running — a lot more room. Let’s analyze what factors could be playing a role in the recent price action.
Cathie Wood’s latest call
In her annual “Big Ideas” report, Wood outlined her stance on why Bitcoin could see a huge run from current trading levels.
Essentially, just as in any other asset class, the price of Bitcoin is determined through the dynamics of supply and demand. But what makes Bitcoin unique is that the crypto has a finite amount of coins that can be mined. For this reason, Bitcoin is perceived as scarce — similar to commodities like gold.
Wood argues that the optimal portfolio allocation for Bitcoin should be about 19%. If the $250 trillion of investable capital worldwide was allotted to Wood’s proposed Bitcoin exposure, the price would rise significantly. More specifically, the roughly $48 trillion allocation to the 21 million total supply of Bitcoin would imply a price of $2.3 million per coin.
Should you invest in Bitcoin right now?
I can understand how Wood’s forecast might instill some crypto fear of missing out (FOMO). But for long-term investors, it’s more important to take a step back and look at the full picture.
One of the likeliest reasons Bitcoin is soaring right now is because the next halving event is slated to occur in April, slowing the growth rate in Bitcoin’s supply. In addition, earlier this year the Securities and Exchange Commission (SEC) granted approval for a number of spot-Bitcoin exchange-traded funds (ETFs).
The idea behind these ETFs is that investors can gain exposure to Bitcoin without buying the actual coin itself. Furthermore, some hold the idea that the ETFs will help build more support from institutional investors, thereby providing crypto with some much-needed legitimacy.
My view is that Bitcoin is enjoying some momentum purely due to broader market dynamics. Indeed, crypto is in a much different investment class than traditional vehicles such as stocks or bonds. But even alternative investments can garner some anomalous attention for no concrete, identifiable reason.
In essence, I see Bitcoin as largely speculative. The risk-reward profile is hard to justify, especially given the crypto market at large is still very much in its nascent phases. So even though Wood could be correct in her forecast, the timeline to reach her proposed price target is unknown.
Rather than invest in Bitcoin, I see many other ways to gain exposure with mitigated risk. In addition to the spot-ETFs, investing in companies such as Coinbase or Robinhood can provide a passive, more diverse way to participate in crypto investing. Furthermore, these stocks represent an insulated approach to investing in Bitcoin, as each company offers other products and services.
I’d pass on Bitcoin for now, despite setting a new high for a fleeting moment. There are more prudent investment opportunities, and I’d avoid buying into hype or momentum built around lofty projections.
Should you invest $1,000 in Bitcoin right now?
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Adam Spatacco has positions in Coinbase Global. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
Cathie Wood Thinks This Top Cryptocurrency Could Soar Over 3,600%. Time to Buy? was originally published by The Motley Fool