One of the hottest Wall Street investment themes this year has been artificial intelligence, and shares of Nvidia have become synonymous with the trend as the company dominates the market for machine learning processors. Some Wall Street analysts, though, see a more significant opportunity taking shape around Bitcoin because of the recent approval of spot Bitcoin ETFs.
Right now, they expect Bitcoin, trading around $66,000, to hit $200,000 by 2025, $500,000 by 2029, and $1 million by 2030 for Bitcoin. That price target on a final analysis implies a 1,415% upside.
For ARK Investment Management, Cathie Wood doubled down on her price target for Bitcoin last year: $1.5 million by 2030. Now, following the approval of spot Bitcoin ETFs, she is raising that to $3.8 million. That new target implies a 5,655% upside from current prices.
Some of the most successful hedge fund managers sold shares of Nvidia during the first quarter and bought shares of the iShares Bitcoin Trust, IBIT 6.02 percent, one of the freshly approved spot Bitcoin ETFs.
Ken Griffin of Citadel Advisors sold 2.4 million shares of Nvidia in the first quarter, cutting his stake 68%. At the same time, he started a small position in the iShares Bitcoin Trust. David Shaw of D.E. Shaw sold 1.4 million shares of Nvidia in the first quarter, shrinking his position by 38%, but he did initiate a small position in the iShares Bitcoin Trust.
Israel Englander of Millennium Management sold 720,004 shares of Nvidia in the first quarter, cutting his stake by 35%. However, he did initiate a pretty sizable position in the iShares Bitcoin Trust, which ranks as his twelfth-largest holding, excluding the options contracts.
At any moment, the price of Bitcoin is a function of supply and demand. However, since supply is capped at 21 million coins, demand is ultimately the real driver of price action. In other words, for the price of Bitcoin to reach $1 million, demand would need to go up substantially, and even more considerably for it to go as high as $3.8 million.
Bernstein and Ark Invest argue that spot Bitcoin ETFs will be the source of demand. This new asset class got the green light from the SEC earlier this year. As indicated below, Spot Bitcoin ETFs track the price of Bitcoin because the cryptocurrency is the underlying asset. Concurrently, they eliminate more traditional sources of friction that might have kept the retail or institutional investor out of the market.
Spot Bitcoin ETFs are primarily available to add Bitcoin exposure through existing brokerage accounts, significantly reducing the friction and headache of maintaining an additional portfolio with some cryptocurrency exchange. This also makes tax reporting easier because most brokerages connect directly to tax preparation software.
The case for Bitcoin ETFs: Spot Bitcoin ETFs are, more often than not, cheaper. For instance, the expense ratio for the iShares Bitcoin Trust is 0.25%. That means investors will pay $25 annually for every $10,000 in the fund. However, Coinbase charges 0.4% to 0.6% per transaction for orders below $10,000. That’s another way of saying investors get hit with higher fees twice, once when they buy and again when they sell.
Bernstein and Ark Invest have very divergent views on Bitcoin’s trajectory over the next decade. Still, they agree that forecasted gains will be driven by demand from institutional investors.
While we are still in the early innings of adoption, recent Forms 13F filed with the SEC do betray institutional demand for spot Bitcoin ETFs. As mentioned, the top three hedge fundsᅳCitadel Advisor, D.E. Shaw, and Millennium Managementᅳhave, started positions in the iShares Bitcoin Trust. Several central investment banks, such as JPMorgan Chase, Morgan Stanley, and Wells Fargo, have bought into spot Bitcoin ETFs.
However, most institutional investors have minimal positions, meaning stakes that are inconsequential portions of their portfolios. But Bernstein analysts Chhugani and Sapra believe institutional investors are “in the process of evaluating ‘net long’ positions as they get comfortable with the improving ETF liquidity.” It’s not just the hype about changing bases daily and hourly. Cathie Wood of Ark Invest is under the impression that institutional investors will, at some point, allocate just over 5% of their portfolios to spot Bitcoin ETFs.
To put that into perspective, institutions had almost $120 trillion in assets under management last year. Hence, Ark’s forecast has those investors putting upwards of $6 trillion into spot Bitcoin ETFs in the future. Should that happen, Wood says the price of Bitcoin could reach $3.8 million.