After getting decimated this year, Bitcoin (BTC 0.65%) could be poised to be worth more than some of the most valuable companies, like Microsoft, Apple, and Alphabet.
Bitcoin hit a new all-time high in price and market cap last November. At the time, one Bitcoin was worth just shy of $70,000, and its market cap came in at just over $1.2 trillion — make sure you remember this number.
Since hitting these all-time highs, the economic landscape has changed drastically, for better and for worse. In the last nine months, investors began looking to minimize risk in their portfolios. Sustained inflation, increased interest rates, and fears of a looming recession have slowed economic growth and investors’ appetites for risky assets.
As a result, since they are generally considered some of the riskiest assets, Bitcoin and all other cryptocurrencies have taken major blows in 2022. Bitcoin shed more than 70% of its value at one point.
Even with a plunge of this magnitude, some positive developments also occurred. One of the most encouraging stories comes from the popular cryptocurrency exchange Coinbase (COIN -3.50%) and the world’s largest investment manager, BlackRock (BLK -2.63%). An early August announcement disclosed that Coinbase would partner with BlackRock to provide services that would allow BlackRock’s institutional customers to purchase Bitcoin.
The plan is for Coinbase to integrate directly with Aladdin, BlackRock’s portfolio management software. It’s believed that nearly $40 trillion is managed on the Aladdin platform — remember this number, too.
ARK makes its claim
Out of this announcement, some analysts have begun speculating on just how much Bitcoin institutions might purchase and what effects that might have on its price. Coincidentally, Cathie Wood’s ARK Invest team ran some numbers on what this would look like all the way back in 2020. In their analysis, ARK analysts conducted a handful of simulations on what percentage of their portfolios should be allocated based on their risk profiles.
The results showed that institutional investors wanting to minimize volatility should dedicate roughly 2.5% to Bitcoin. Let’s go back to that $40 trillion that Aladdin supports. If those institutional clients of BlackRock allocated 2.5% of the $40 trillion to Bitcoin, that would mean $1 trillion would flow into Bitcoin’s market cap. With a market cap of $400 billion, another $1 trillion would more than double the value of Bitcoin and increase its total market cap to about $1.4 trillion. That’s almost halfway to the necessary $3 trillion market cap.
But the ARK analysis also found that institutional investors wanting to take on more risk could, theoretically, allocate 6.5% of their portfolios to Bitcoin. That would entail about $2.5 billion more making its way into Bitcoin. That additional $2.5 trillion would bring Bitcoin’s market cap to about $3 trillion. We can do a little more math and discover that by dividing its market cap by the number of bitcoins in circulation (about 19.1 million), one bitcoin would be worth about $156,000.
The case for more than $156,000
In her monthly update on all things related to the economy, Wood touched on this development between Coinbase and BlackRock and speculated in a similar fashion. Though, one thing differed that we haven’t touched on. Wood pointed out that despite roughly 19 million bitcoins in circulation, technically, not all of them are available for purchase. Statistics show that only about 4 million are liquid, meaning they are on the market for purchase. The other 14 million or so are being held by investors.
Wood elaborated that if institutions were left with only 4 million bitcoins to purchase, a simple case of limited supply and increased demand could send Bitcoin even higher than the $156,000 mark.
This isn’t to say that this will happen overnight or even in the next year. Investors should use this time to increase their Bitcoin positions gradually. Current trends signal that institutions are becoming more interested in owning Bitcoin. These types of investors typically have much larger amounts of capital than retail investors. If ARK analysts are correct, BlackRock investors could play an integral role in driving Bitcoin well past its all-time high.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Apple, Bitcoin, Coinbase Global, Inc., and Microsoft. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
