According to Cathie Wood, should you buy this top cryptocurrency before it surges more than 4,000%?

One of the most followed investors on Wall Street is Cathie Wood, Chief Executive Officer of Ark Invest. Wood has earned a reputation as a passionate proponent of new technology trends in areas such as electric vehicles (EVs), artificial intelligence (AI) and genomics.

From time to time, Ark Invest releases research to the public – giving investors a glimpse into the data and work behind Wood's predictions. Given her keen interest in technology, it's probably no surprise to learn that Wood is a proponent of it Bitcoin (BTC 0.00%).

While she is not the only institutional investor to strongly support Bitcoin, she is certainly one of the most bullish. Two weeks ago, Ark Invest released its annual Big Ideas report for 2024. One of the standout results of the presentation was Wood's latest outlook on Bitcoin.

Although she doesn't give an exact timeline, Wood calls for Bitcoin to reach a price of $2.3 million per token – an increase of more than 4,000% from Bitcoin's current price.

So is now the time to put money into Bitcoin? Let's take a closer look at Wood's case and assess whether Bitcoin is right for you.

A breakdown of Cathie Wood's latest take on Bitcoin

Bitcoin is different from other asset classes such as stocks or bonds. In general, during times of economic instability, investors may consider alternatives such as real estate, art, or commodities such as gold.

Although crypto is a relatively young asset class, Bitcoin in particular has some overlap with gold, as both are considered scarce. For this reason, some view assets like gold or Bitcoin as a haven or store of value. In fact, some investors refer to Bitcoin as digital gold.

At a high level, Wood sees Bitcoin as an important part of portfolio structure to mitigate risk. However, the more important detail is how much weight they think Bitcoin should take.

The following table illustrates Wood's proposed portfolio allocation:

Asset type	% allocation
gold	40.7%
Shares	30.3%
Bitcoin	19.4%
raw materials	9.6%
Tie up	0%

Source: Ark Invest Big Ideas Report 2024.

With an allocation of almost 20%, it is clear that Wood believes Bitcoin should be an important part of a diversified portfolio. A little more numbers are needed to derive Wood's price target of $2.3 million.

According to Ark Invest, the global investable asset base is $250 trillion. In other words, this is the amount of money that could theoretically be deployed in the markets. Additionally, as I mentioned above, Bitcoin is a scarce commodity and only 21 million coins will ever enter circulation. Around 19.6 million Bitcoins have been mined so far.

Taking Wood's proposed 19.4% Bitcoin allocation and multiplying it by the investable asset base of $250 trillion, she calls for a total of $48.5 trillion to be allocated to Bitcoin. If you were to use this amount to buy the 19.6 million Bitcoin currently in circulation, the price would be around $2.3 million per token.

Now that the math equations are out of the way, you're probably wondering how likely that is.

Image source: Getty Images.

What could increase interest in Bitcoin?

Although the above analysis is entertaining, it is simply a fun numbers exercise. The reality is that the price of Bitcoin – like other assets – is determined by the dynamics of supply and demand. Perhaps a 19.4% allocation to Bitcoin could be considered too high, but I agree with Wood that it will take a huge amount of money to drive the price of Bitcoin significantly higher. For this to happen, I think more institutional ownership is needed.

As things stand today, Bitcoin is still considered highly speculative. Cryptocurrencies don't have as many use cases as traditional fiat currencies, and it's still unclear whether Bitcoin and other coins will endure in the long term. However, there are some notable points to discuss that could increase interest in Bitcoin from larger asset managers.

Earlier this year, the Securities and Exchange Commission (SEC) granted approval for a number of spot Bitcoin exchange-traded funds (ETFs). The main purpose of these products is to track the performance of Bitcoin without requiring investors to invest directly in the coin.

If these vehicles are successful and generate significant interest, it is possible that larger investors will consider delving deeper into crypto and potentially investing some funds in Bitcoin. As Wood's calculation shows, if this happens on a large scale, Bitcoin's price should rise significantly.

Should you invest in Bitcoin?

I find Wood's Bitcoin prediction interesting and applaud her for sticking to her strong conviction. However, the call for the current Bitcoin price to rise by almost 4,300% seems a bit far-fetched.

I agree that more institutional money will flow into Bitcoin over time. For me, however, the biggest questions are how long it might take for Bitcoin to become mainstream, and even if it does, how much of an allocation the asset will represent in a portfolio.

The risk-reward dichotomy of owning Bitcoin cannot be misunderstood. A lot of money can be made, but just as much can also be lost. Although this is also true of other asset classes such as stocks, Bitcoin simply does not share the same characteristics.

Unlike a stock, Bitcoin does not generate profits or cash flows, pay dividends, or have a management team with a strategy. There isn't even a clear regulatory framework. It is truly a decentralized, high-risk investment opportunity.

With so much uncertainty surrounding Bitcoin, investors should think long and hard before jumping into the coin or the crypto market in general – regardless of the potential upside.

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