It’s no secret Cathie Wood, the brainchild of growth investing expects great things from Bitcoin(CRYPTO:BTC). Fund manager Ark Invest started talking about crypto before it was a household name and recently doubled down on its bullish projections.
In an interview with Bloomberg TV last Thursday, Wood reiterated a Bitcoin price target of between $1.0 million and $1.5 million by 2030. But that’s not the whole story. What’s interesting about Cathie Wood’s Bitcoin coverage is that she continues to explain her investment thesis in more detail over time.
Last week’s interview is no exception. So let’s see the latest nuggets from Cathie Wood on the economic theory favorable to Bitcoin.
First, Wood noted that the likelihood of hitting its existing Bitcoin price targets has increased in 2024. Institutional investors are finally taking digital assets seriously, aided by new tools such as Bitcoin exchange-traded funds (ETFs) at cash launched in January. Their investments in Bitcoin are expected to make a big difference to the price and stability of the asset over the coming years.
“(Large investors) need to consider allocation” these days because Bitcoin production is capped in the long term.
94.3% of all Bitcoins that will ever exist have already been produced and can be found in crypto wallets around the world. You can’t capture a large slice of the total Bitcoin pie by creating or finding more of it, as you could with physical assets such as gold or oil. The iron law of supply and demand should inevitably drive up the price of this limited asset, so financial institutions should start building up their Bitcoin wallets before it becomes expensive.
In this context, $100,000 per piece is not considered “expensive”. Remember, the long-term target price is measured in millions of dollars. Cathie Wood is playing the long game here.
Wood also explained that Bitcoin is more than a speculative asset. Rather than the next worthless “tulip bulb craze,” Bitcoin serves an important purpose for people who don’t just expect it to gain value over time.
“This is a rules-based global monetary system,” she said. “It’s private, it’s digital, it’s decentralized and it’s backed by the largest (computer system) in the world. It’s the most secure network in the world.”
Bitcoin is similar to a global, highly detailed accounting system that tracks all the world’s gold, assigning an owner to each sliver of a gold nugget, and protects the data with multiple layers of cryptography. You cannot cancel or modify transactions or ownership records without breaking Bitcoin’s transaction recording platform. The asset tracked in this case is not a physical piece of noble metal, but the computational work required to generate a unique digital token.
There is an unknown but very real limit to the amount of physical gold in the world, until entrepreneurs find additional sources on asteroids or other planets. At the same time, there will simply never be more than 21 million Bitcoin tokens, and 19.6 of them are already in circulation. In the long run, this system is almost inflation-proof – provided its security is resistant to new attack ideas such as quantum computing algorithms.
Cathie Wood takes the mystery out of her investment thesis for Bitcoin. Image source: Getty Images.
Cathie Wood also highlighted how this approach to inflation protection differs from that of gold.
“When the price of gold increases, production increases – the rate of increase in supply increases,” she said. “This cannot happen with Bitcoin. It is mathematically calculated that it will grow by 0.9% per year over the next four years and then the supply growth will be cut in half again.”
This is because the physical mining of gold tends to become more common when the price of the metal is high. Miners want to take advantage of this valuable asset when it is most profitable. The equation is different for Bitcoin miners, who will produce smaller and smaller pieces of digital assets over time. Thus, the cost of minting new Bitcoins will increase while the number of new coins introduced to the market will slow down.
It therefore makes more sense to deploy maximum production effort as quickly as possible, because the return on investment of your mining machines and electrical power will only decrease over the years. The same logic suggests that buying Bitcoin early will be more profitable in the long run. Waiting for a lower purchase price or an easier Bitcoin mining environment almost never makes sense.
So Cathie Wood highlighted her 5-year Bitcoin goal of at least $1 million per coin, and she provided more details on her underlying investment thesis.
Other Bitcoin investors may work with different assumptions that result in different target prices, but the overall tenor of the market is fairly consistent. Bitcoin looks set to surpass the recent $100,000 mark. From big banks to regular nest egg builders, most investors should pay close attention to these new crypto tokens.
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