Yes, Cathie Wood's $700,000 Bitcoin Price Prediction Is Legit

gold-colored Bitcoin

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A Bitcoin (BITCOMP) price prediction of $700,000 - more than 10 times the recent price - would strike most people as delusional. But this eye-popping target doesn't come from a Bitcoin fanboy on Twitter or Reddit. It comes from Wall Street's latest superstar: ARK Invest CEO Cathie Wood.

Wood gained notoriety in 2020 when several of ARK's funds posted gains of more than 100%. Two of them, the ARK Genomic Revolution ETF (ARKG) and the flagship ARK Innovation ETF (ARKK), had gains of more than 150%.

Her primary investing theme is disruptive innovation, which has led to big bets on companies like Tesla Inc. (TSLA) and new technologies like Bitcoin. In other words, Wood looks for investments that may be high risk but are likely to upend entire industries.

But Wood isn't just rolling the dice on Bitcoin; the ARK team can back up every move they make with extensive research. So when Wood comes out with a Bitcoin price prediction of $700,000, you know she didn't pull that number out of thin air. I'm going to share more on how she reached this prediction.

Because whether you believe she's right or full of hot air, there's an important moneymaking lesson for any cryptocurrency investor when it comes to Bitcoin price predictions thus far.

Making a Case for Investing in Bitcoin

ARK has been buying Bitcoin since 2015, when it was in the depths of a bear market - the price was well below $500 that entire year. So Wood gets credit for seeing Bitcoin's huge potential when the media was writing obituaries.

And over the years, Wood's research team at ARK has compiled an impressive investment case for Bitcoin. In a September 2020 report created in collaboration with Coin Metrics, ARK identified the following catalysts for Bitcoin...

  • As a global settlement network: ARK thinks Bitcoin could serve as a settlement system for both banks and businesses. "Unlike traditional settlement systems, the Bitcoin network is global, it cannot censor transactions, and its money cannot be inflated by institutions like central banks," the ARK report says. If Bitcoin captured 10% of this market, ARK estimates it would add about $70,000 to the Bitcoin price.
  • As a haven against the seizure of assets: ARK points out that in countries where property rights are ignored, Bitcoin provides a way for ordinary citizens to shelter wealth from illegal seizure or the inflation of the native currency. We've already seen this play out in countries like Venezuela, Argentina, Vietnam, and Nigeria. ARK believes the use of Bitcoin to protect wealth from a corrupt or misguided regime could add more than $200,000 to the price of Bitcoin.
  • As "digital gold": ARK agrees with a notion widely believed in the Bitcoin community that it could challenge gold among global investors as a store of value. "Not only is Bitcoin scarce and durable, but it also is divisible, verifiable, portable, and transferable, all of which protect from the threat of centralization," the ARK report says. Bitcoin taking a 10% share of the physical gold market would add about $40,000 to the Bitcoin price, according to ARK.
  • As a replacement currency in emerging markets: Many emerging market nations struggle to maintain a stable currency. When rampant inflation causes citizens to lose faith in their native currencies, they turn to alternatives. Often, the alternative of choice is the U.S. dollar. But ARK thinks Bitcoin can grab some of this market as well. If Bitcoin captures 5% of the global monetary base beyond the "Big Four" of the U.S. dollar, the Japanese yen, the euro, and the yuan, the ARK report says it will add nearly $60,000 to the price of Bitcoin.

That's the foundation of ARK's thinking on Bitcoin, but that report is already more than a year old. Since then, Wood has become even more bullish.

Just a couple of months after that report was published, Wood told attendees of Barron's virtual "Investing in Tech" series that she expected Bitcoin to rise as high as $500,000.

Her explanation was based on institutional investors gradually adding Bitcoin to their portfolios. She compared the phenomenon to "the early days of institutions moving into real estate and emerging markets. They started out with a half a percent allocation, then [1%], and then 5% or thereabout seemed to be the right number."

If institutional investors made Bitcoin 5% of their holdings, Wood said it would push the Bitcoin price to "to somewhere in the $400,000 to $500,000 range" over the next five years. Note that Wood didn't even mention the catalysts from the report. She put some of it together in a recent interview.

How Wood Gets to a Bitcoin Price Prediction of $700,000

The interview that gave us the $700,000 Bitcoin price prediction was done with Saxo Bank CIO Steen Jakobsen a few weeks ago. It was here that she combined her estimate of institutional investing adding $500,000 to the Bitcoin price with the impact of greater adoption in emerging markets.

Wood gave a rationale for why institutions will be compelled to invest in Bitcoin. Calling it a new asset class, Wood said that Bitcoin's lower correlation with other investments was very appealing to institutional investors. "That's what they're looking for," she said.

Then she moved on to the emerging markets idea that was described in the ARK report. "What's happening in El Salvador is unbelievable," Wood said, noting how President Nayib Bukele has made Bitcoin legal tender and is providing $30 worth of the cryptocurrency to any citizen who downloads the Chivo digital wallet.

"Already today, roughly 3 million have downloaded the Chivo wallet and are using it not just to get access to that $30, but to do peer-to-peer exchange," citing remittances as accounting for a "disproportionate amount" of the activity.

Wood said ARK sees remittances as one element, along with those mentioned in the report, that will encourage significant adoption of Bitcoin in emerging markets. "We think emerging markets are a huge use case here," Wood said. "That use case alone will account for $100,000 to $200,000" of an increase in the price of Bitcoin.

Now let's do the math. The recent Bitcoin price of nearly $60,000 is the base. Wood sees institutional investors adding $500,000 to that and emerging market adoption adding $100,000 to $200,000 more.

So Wood's five-year Bitcoin price target is actually a range between $660,000 and $760,000, with $700,000 falling just below the middle of the range. It's a case built on research, insight, and logic.

And while $700,000 may sound outlandish to some investors, consider this: Back in September 2016, research firm Needham & Co. predicted Bitcoin would hit $2,231 by 2020. At the time, Bitcoin was trading at about $600. Four years later, Bitcoin was trading far above $2,231 - by mid-2020, it had soared past $11,000, more than five times Needham's once-outlandish target, and by December, it had rocketed past $25,000.

No one has a crystal ball to see into the future, but what we do know with the history of Bitcoin is that people who have scoffed at outlandish price predictions in the past are kicking themselves now for not owning some sooner. As volatile as it can be at times, the 2020's cryptocurrency bull shows no sign of letting up.

Disclosure: None.

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Old Time Investor 6 months ago Member's comment

I’m normally with Cathie, but 700,000 per coin. What? Ha!

10 trillion dollar valuation on #bitcoin is what she is saying. I’m a bit skeptical as #Tesla just passed 1 trillion in valuation. That’s a complete overthrow in a financial system. Maybe it’s going to happen, however it contradicts her thesis of how technology will cause deflation. Idk. Guess I’ll have to look into her thinkin