Artificial intelligence (AI) has been one of the hottest investment themes on Wall Street this year, and Nvidia (NASDAQ: NVDA) has become the quintessential AI stock due to its leadership in machine learning processors. But some Wall Street analysts see a substantial opportunity emerging around Bitcoin (CRYPTO: BTC) due to the recent approval of spot Bitcoin ETFs.
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Bernstein’s Gautam Chhugani and Mahika Sapra believe that Bitcoin could reach $200,000 by 2025, $500,000 by 2029, and $1 million by 2030. This prediction ultimately implies a 1,415% increase in its price current $66,000.
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Last year, Cathie Wood estimated that Bitcoin could reach $1.5 million by 2030, but she increased that number to $3.8 million following the approval of spot Bitcoin ETFs. Her latest forecast implies an increase of 5,655% compared to the current price.
Several successful hedge fund managers sold Nvidia shares during the first quarter while simultaneously buying Nvidia shares. iShares Bitcoin Trust (NASDAQ:IBIT)one of the recently approved spot Bitcoin ETFs.
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Ken Griffin of Citadel Advisors sold 2.4 million Nvidia shares in the first quarter, reducing his stake by 68%. Meanwhile, he started a small position in the iShares Bitcoin Trust.
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DE Shaw’s David Shaw sold 1.4 million Nvidia shares in the first quarter, reducing his stake by 38%. Meanwhile, he started a small position in the iShares Bitcoin Trust.
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Millennium Management’s Israel Englander sold 720,004 Nvidia shares in the first quarter, reducing his stake by 35%. Meanwhile, he initiated a rather sizable position in the iShares Bitcoin Trust, so that it ranks as his twelfth-largest holding, excluding options contracts.
The three billionaires mentioned above are noteworthy because they run the top three hedge funds as measured by net earnings since inception, according to LCH Investments. Readers should not interpret his trades to mean that Nvidia is a bad investment, but rather that diversification has merits. See why the iShares Bitcoin Trust is a valuable long-term holding for risk-tolerant investors.
Spot Bitcoin ETFs are unlocking demand from institutional investors
At any given time, the price of Bitcoin is determined by supply and demand. However, its supply is limited to 21 million coins, so demand is ultimately the driving force behind price action. In other words, demand for Bitcoin would need to increase substantially for its price to reach $1 million, and even more substantially for its price to reach $3.8 million.
Bernstein and Ark Invest believe demand will come spot Bitcoin ETFsa new asset class approved by the SEC earlier this year. Spot Bitcoin ETFs track the price of Bitcoin by holding the cryptocurrency as the underlying asset and eliminate traditional sources of friction that may have kept institutional and retail investors out of the market, as detailed below.
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Spot Bitcoin ETFs allow investors to add exposure to Bitcoin through existing brokerage accounts. This eliminates the complexity of maintaining a separate portfolio with a cryptocurrency exchange. It also simplifies tax reporting because most brokerages link directly to tax preparation software.
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Spot Bitcoin ETFs are often cheaper. The iShares Bitcoin Trust has a Expense Ratio of 0.25%, meaning investors will pay $25 per year for every $10,000 in the fund. But Coin base charges 0.4% to 0.6% per transaction for orders under $10,000, meaning investors are hit with higher fees twice – once when they buy and again when they sell.
Bernstein and Ark Invest expect Bitcoin to follow different trajectories over the next decade, but they agree on one thing: demand from institutional investors will drive anticipated gains.
We are still in the early stages of adoption, but institutional demand for spot Bitcoin ETFs is evident in recent Forms 13F filed with the SEC. As mentioned, the three major hedge funds – Citadel Advisor, DE Shaw and Millennium Management – have initiated positions in the iShares Bitcoin Trust. Several large investment banks, including JP Morgan To chase, Morgan StanleyIt is Wells Fargoalso purchased Bitcoin ETFs in cash.
However, most institutional investors currently have very small positions, meaning their holdings represent 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 become comfortable with ETF liquidity improving.”
Similarly, Cathie Wood of Ark Invest believes that institutional investors will eventually place a little more than 5% of their portfolios in spot Bitcoin ETFs. For context, institutions had nearly $120 trillion in assets under management last year, so Ark’s forecast implies that these investors will allocate more than $6 trillion to identify Bitcoin ETFs in the future. If that happens, Wood says the price of Bitcoin could reach $3.8 million.
History says Bitcoin will reach a new high between April 2025 and October 2025
Bernstein is also bullish on Bitcoin because of the halving event that occurred in April 2024. “We believe that a new cycle starting with the halving is not a coincidence, but driven by unique supply and demand dynamics ,” the analysts wrote in a recent note.
To elaborate, Bitcoin block subsidies – newly minted Bitcoin given to miners for solving cryptographic puzzles to verify transaction blocks – are reduced by 50% each time 210,000 blocks are added to the blockchain. These halving events happen once every four years, and the most recent one occurred in April.
This is significant because Bitcoin has experienced three halving events before, and its price has always reached a new peak 12 to 18 months later, as shown in the chart below.
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Halving date |
Peak Return |
Time to return to the peak |
|---|---|---|
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November 2012 |
10,485% |
371 days |
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July 2016 |
3,103% |
525 days |
|
May 2020 |
707% |
546 days |
Source: Fidelity Digital Assets.
As shown above, post-halving returns have decreased with each subsequent halving event, simply because each subsequent halving event has a smaller impact on total supply. But history suggests that Bitcoin will peak sometime between April 2025 and October 2025.
A word of caution for investors
Past performance is never a guarantee of future returns and price targets should never be taken for granted. Bitcoin is a relatively new asset class and its limited history means that predicting its performance is essentially impossible.
Furthermore, Bitcoin has fallen by more than 50% on several occasions and similar declines are plausible (if not likely) in the future. Investors comfortable with these risks should consider purchasing a position in the iShares Bitcoin Trust today. Adding cryptocurrency exposure is a great way to diversify a portfolio weighed down by AI stocks like Nvidia.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions at Nvidia. The Motley Fool has positions and recommends Bitcoin, Coinbase Global, JPMorgan Chase, and Nvidia. The motley fool has a disclosure policy.
Billionaires are selling Nvidia shares and buying an index fund that could rise as much as 5,655%, according to some Wall Street analysts was originally published by The Motley Fool
