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According to Cathie Wood of Ark Invest, this cryptocurrency could rise 5,300% by 2030

Ark Invest's Cathie Wood continues to increase her price predictions for Bitcoin (BTC 1.70%). At the recent Bitcoin Investor Day event in New York City, Wood increased her 2030 Bitcoin price prediction to $3.8 million from an already high $1.5 million. Given today's price of about $70,000, that would be a staggering gain of about 5,300% in just six years.

At first glance, the prediction sounds absurd. However, there are two key catalysts that could ultimately make this a reality.

Institutional adoption

The main factor driving Bitcoin to previously unthinkable heights is greater than expected institutional adoption. Quite simply, large institutional investors are waking up to the idea that Bitcoin is a distinct asset class worth adding to their portfolios. With the launch of the new spot Bitcoin exchange traded funds (ETFs), you now have a regulated way to invest in Bitcoin without having to participate directly in the crypto market.

Image source: Getty Images.

The investor flows into the new spot Bitcoin ETFs since January have been nothing short of breathtaking. The top two Bitcoin ETFs have collectively accumulated more than $25 billion in client assets in just over two months. And the new Ark 21Shares Bitcoin ETF (ARKB 3.32%) With almost $3 billion in assets under management, the company hasn't done too badly either. Admittedly, some of this money comes from small retail investors, but the lion's share comes from institutional investors.

The big question, of course, is what proportion of their assets these institutional investors will invest in Bitcoin over time. Currently the cautious allocation range is 1% to 3%. But Wood expects that allocation to eventually rise to well over 5%. That percentage would be high enough, she claims, to push Bitcoin past the $1.5 million mark.

Bitcoin as a financial highway?

However, for Bitcoin to reach its full potential, something more is needed. In my view, it is highly unlikely that Bitcoin can reach $3.8 million if people just hoard it and hold on to it at all costs. People actually need to do something with their Bitcoins. In crypto jargon, Bitcoin must have some utility.

This is why Ark Invest has consistently focused on all potential use cases for Bitcoin. From a macroeconomic perspective, the growth of these use cases will lead to greater demand for Bitcoin, which should drive up its price. In Ark Invest's Big Ideas 2023 report, the investment firm outlined eight key use cases for Bitcoin, predicted their growth potential, and then aggregated the market size of each for 2030. This is how Ark Invest achieved its $1.5 million price target for Bitcoin .

A rapid price increase can only occur, says Wood, if Bitcoin becomes a “financial highway” for the world’s banking and financial system. Building such a financial highway would be particularly important for emerging markets, says Wood. So you can imagine a Bitcoin highway crossing Latin America or connecting the countries of sub-Saharan Africa.

While that sounds inspiring, how realistic is this scenario? Finally, Bitcoin remains a relatively slow proof-of-work blockchain that was never designed to handle smart contracts. It is not as fast as other blockchains, not as energy efficient as other blockchains, and not as flexible or scalable as other blockchains. And that's why all the use cases that were originally predicted for Bitcoin – such as the scenario that one day we would all pay with Bitcoin for everything we buy – have not come true.

In my view, it would be much better to build a financial highway with a super-fast, super-cheap blockchain like e.g Solana (SOL 3.31%). Even Cardano (ADA 0.85%) might be a better choice, especially given the progress it has made in sub-Saharan Africa. So I'm not quite as willing to embrace this financial highway view of Bitcoin as I was to embrace former Vice President Al Gore's “information highway” view of the Internet.

How realistic is a price of $3.8 million?

Bitcoin's ability to reach its $3.8 million price target depends on whether it can continue to deliver historically high returns to investors. Looking backwards and with a few straightforward calculations, Bitcoin would need to deliver an annual return of just over 100% to reach a price of $3.8 million by 2030.

Granted, Bitcoin has done this before. Over the 10-year period from 2001 to 2011, Bitcoin achieved an annual return of 230%, making it the best-performing asset in the world. And just last year, Bitcoin saw a rapid performance of 150%. So I'm not saying that Bitcoin can't return 100% per year.

But at some point you have to temper your expectations and curb some of the current Bitcoin ETF euphoria. While I remain very optimistic about Bitcoin's prospects, I am also concerned that some of these price predictions are being pushed too high too quickly.

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