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 certain Wall Street analysts see a substantial opportunity taking shape around Bitcoin (CRYPTO: BTC) due to the recent approval of spot Bitcoin ETFs.
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Gautam Chhugani and Mahika Sapra at Bernstein believe Bitcoin could reach $200,000 by 2025, $500,000 by 2029, and $1 million by 2030. That forecast ultimately implies 1,415% upside from its current price of $66,000.
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Last year, Cathie Wood estimated Bitcoin could reach $1.5 million by 2030, but she upped that figure to $3.8 million following approval of spot Bitcoin ETFs. Her latest forecast implies 5,655% upside from the current price.
Several successful hedge fund managers sold shares of Nvidia during the first quarter, while simultaneously buying shares of the iShares Bitcoin Trust (NASDAQ: IBIT), one of the recently approved spot Bitcoin ETFs.
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Ken Griffin at Citadel Advisors sold 2.4 million shares of Nvidia in the first quarter, reducing his stake 68%. Meanwhile, he started a small position in the iShares Bitcoin Trust.
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David Shaw at D.E. Shaw sold 1.4 million shares of Nvidia in the first quarter, reducing his stake by 38%. Meanwhile, he started a small position in the iShares Bitcoin Trust.
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Israel Englander of Millennium Management sold 720,004 shares of Nvidia in the first quarter, reducing his stake by 35%. Meanwhile, he started a rather sizable position in the iShares Bitcoin Trust, such that it ranks as his twelfth-largest holding excluding options contracts.
The three billionaires mentioned above are noteworthy because they run the three top hedge funds as measured by net gains since inception, according to LCH Investments. Readers should not interpret their trades to mean Nvidia is a bad investment, but rather that diversification has merits. Here’s why the iShares Bitcoin Trust is a worthwhile long-term holding for risk-tolerant investors.
Spot Bitcoin ETFs are unlocking demand from institutional investors
At any given moment, Bitcoin’s price 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 that demand will come from spot Bitcoin ETFs, a brand 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 they eliminate traditional sources of friction that may have kept retail and institutional investors out of the market, as detailed below.
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Spot Bitcoin ETFs let investors add Bitcoin exposure through existing brokerage accounts. That 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 an expense ratio of 0.25%, meaning investors will pay $25 per year on every $10,000 in the fund. But Coinbase charges 0.4% to 0.6% per transaction for orders under $10,000, meaning investors get 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 the forecasted 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 top three hedge funds — Citadel Advisor, D.E. Shaw, and Millennium Management — have started positions in the iShares Bitcoin Trust. Several major investment banks, including JPMorgan Chase, Morgan Stanley, and Wells Fargo, have also bought into spot Bitcoin ETFs.
However, most institutional investors have very small positions at the present time, meaning their stakes 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 get comfortable with the improving ETF liquidity.”
Similarly, Cathie Wood at Ark Invest believes institutional investors will eventually put a little more than 5% of their portfolios into spot Bitcoin ETFs. For context, institutions had nearly $120 trillion in assets under management last year, so Ark’s forecast implies that those investors will allocate more than $6 trillion to spot Bitcoin ETFs in the future. Should that happen, 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 took place in April 2024. “We believe a new cycle commencing with halving is not a coincidence, but driven by unique demand-supply dynamics,” the analysts wrote in a recent note.
To elaborate, Bitcoin block subsidies — newly minted Bitcoin awarded to miners for solving cryptographic puzzles to verify transaction blocks — are reduced by 50% every time 210,000 blocks are added to the blockchain. Those halving events happen about once every four years, and the most recent one took place in April.
That is significant because Bitcoin has gone through three halving events before, and it’s price has always reached a new peak 12 to 18 months later, as shown in the chart below.
|
Halving Date |
Peak Return |
Time to Peak Return |
|---|---|---|
|
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 diminished with each subsequent halving event, simply because each subsequent halving event has a smaller impact on the total supply. But history suggests 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 track record means that forecasting its performance is essentially impossible.
Additionally, Bitcoin has declined by more than 50% on several occasions and similar drawdowns are plausible (if not probable) in the future. Investors comfortable with those risks should consider buying a position in the iShares Bitcoin Trust today. Adding exposure to the cryptocurrency is a great way to diversify a portfolio overloaded with 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 in Nvidia. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, JPMorgan Chase, and Nvidia. The Motley Fool has a disclosure policy.
Billionaires Are Selling Nvidia Stock and Buying an Index Fund That Could Soar Up to 5,655%, According to Certain Wall Street Analysts was originally published by The Motley Fool