Here’s What One of the World’s Smartest Investors Thinks About Bitcoin

Here’s What One of the World’s Smartest Investors Thinks About Bitcoin

  • Bitcoin
  • August 18, 2022
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Things have been interesting for Bitcoin (BTC -1.29%) over the past month to say the least. After getting routed through May, June, and July, Bitcoin is now up more than 30% since its mid-July low. But what could have caused this rebound? Cathie Wood and her team at ARK Invest believe they might have a few ideas on the current Bitcoin market and what the future could hold.

Wood shed some further light on this trend and the reasoning behind her firm’s beliefs on why this upswing occurred. She highlighted the 200 week moving average (WMA) as being a consistent support level for Bitcoin. The 200 WMA sits at about $22,000, and when Bitcoin fell below that price, analysts were worried that without a quick reclamation of that level, a further drop to as low as $10,000 could happen. But Bitcoin bounced back fast, got above the support line, and has since gained some much needed momentum. 

Wood also mentioned that although the 2022 plunge felt catastrophic at times, investors should take into account that Bitcoin had bigger declines in the past. The most recent fall in price was around 70% from the peak. Yet previous declines have seen retreats of more than 80%.

The main talking point

ARK Invest also believes that the other reassuring piece of news was an agreement between one of the most popular cryptocurrency exchanges, Coinbase (COIN -5.48%), and the world’s largest investment management firm, BlackRock (BLK -1.83%). This collaboration will allow customers of BlackRock’s Aladdin investment technology software to seamlessly buy Bitcoin. 

Based on current numbers, there may be as much as $40 trillion in assets within the Aladdin ecosystem. Wood and her team view this as some of the most promising news in Bitcoin’s legitimization as an asset. 

The most interesting piece of Wood’s analysis on the BlackRock development involves a little speculation, but a little speculation never hurts. In her final thoughts on the Aladdin clients now able to buy Bitcoin, she hypothesized that at least a small portion of that $40 trillion would be allocated to Bitcoin. 

Wood utilized a study conducted by ARK a while back that researched how institutional investors would strategize crypto allocations. They posited that if an institution wanted to benefit from crypto but minimize volatility, then it would put 2.5% into Bitcoin. If investors were more interested in returns, ARK analysts theorized that those institutions could allocate as much as 6.5%. 

In her video, Wood started on the low end and suggested that if 2.5% of that $40 trillion ($1 trillion) were to make it into Bitcoin, then the most valuable cryptocurrency could more than double from today’s prices. And that’s just based on involvement from institutional investors. That doesn’t count the inevitable onslaught of retail investors that would follow suit as well. 

Now let’s say 6.5% of $40 trillion, or $2.5 trillion, found its way into Bitcoin. That would entail a near 400% gain and would put the price of one Bitcoin at about $125,000, much more than its record of almost $69,000. 

Wood ended her discussion on Bitcoin with even more intriguing insights. She and her team believe that despite roughly 18 million bitcoins in circulation today, not all of them are liquid (in other words, they aren’t on the market to purchase). ARK speculates that about 14 million bitcoins are owned by long-term holders, leaving only 4 million or so available for purchase today. Wood hinted at the idea that with an even smaller number of bitcoins available for trading, estimates of a twofold or fourfold price increase could be on the low end. 

A necessary grain of salt

However, just because Cathie Wood said it doesn’t mean it all has to play out like this. Everyone likes to speculate but the development that deserves the most attention is the move by BlackRock. This collaboration with Coinbase is arguably one of the most significant events to make it easier for institutions to begin purchasing Bitcoin.

Before this integration, it was difficult for these types of investors to hold Bitcoin due to a lack of resources and clarity. Now that BlackRock has come along, Aladdin clients should have the tools needed to properly and successfully add Bitcoin to their portfolios. 

RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global, Inc. The Motley Fool has a disclosure policy.

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