Billionaire money managers are some of the savviest minds on Wall Street. However, the moves of hedge funds and family offices don't always align with the opinions of analysts, whose job is to advise investors. But when the two do agree, it could mean an investment is about to soar higher.
That's why it's particularly notable that multiple billionaires are piling into the iShares Bitcoin Trust (IBIT -1.14%). The leading spot Bitcoin exchange-traded fund (ETF) has attracted the attention of several notable asset managers, including Israel Englander, David Shaw, and Steven Cohen in the first six months of 2024.
- Israel Englander added 10.9 million shares of the ETF to Millenium Management's portfolio.
- David Shaw's D.E. Shaw & Company bought 2.6 million shares of the ETF.
- Steven Cohen bought 1.7 million shares for Point72 Asset Management.
At the same time, multiple analysts and Wall Street insiders have put a massive long-term price target on Bitcoin (BTC -0.02%), the underlying asset behind the iShares Bitcoin Trust. Ark Invest's Cathie Wood says Bitcoin could reach $1 million or more by 2030. Bernstein analysts suggest it might take until 2033 to reach that milestone. Tech CEOs Michael Saylor and Jack Dorsey also expect Bitcoin to reach $1 million, and they've invested heavily in the cryptocurrency through their companies. That price represents an increase of 1,207% over the next six years, as of this writing.
Here's the bullish case for Bitcoin and the iShares Bitcoin Trust.
Image source: Getty Images.
Money managers still have a lot of room to add to their portfolio
The Securities and Exchange Commission (SEC) approved 11 spot Bitcoin ETFs at the start of 2024, and they could unlock a ton of value for Bitcoin. The ETFs make investing in Bitcoin much easier for institutional investors like the billionaires listed above.
So far, over $25 billion have flowed into those ETFs since their launch in January, as of this writing. But the majority of those funds came from retail investors, not the big banks and hedge funds. That said, investment advisors and hedge funds investing in Bitcoin ETFs like the iShares Bitcoin Trust are two of the fastest-growing parties of interest.
Many institutional investors may be waiting for more regulatory clarity on the cryptocurrency. Bitcoin prices surged on the news of Donald Trump winning the U.S. presidential election, as his administration is expected to provide a favorable regulatory environment for Bitcoin. Still, the real value will come from any regulation, regardless of whether it's tight or loose, that gives institutional investors clear boundaries and guidelines for how to invest in Bitcoin.
The hedge funds listed above have just 0.1% to 0.2% of their equity portfolios invested in the iShares Bitcoin Trust. They also hold other Bitcoin-related investments, including other spot Bitcoin ETFs. Still, they represent some of the biggest early investors.
Cathie Wood, the Bernstein analysts, and others expect institutional investors to hold at least 1% of their portfolio in Bitcoin or Bitcoin ETFs eventually. That adoption among big money will drive the price of Bitcoin higher due to its limited supply capacity.
The cost of Bitcoin mining will push prices higher
Another factor that could push pricing higher is the increasing cost of mining Bitcoin. The cost to mine Bitcoin is largely a factor of how many miners are participating in the activity. As demand drives the price higher, it increases competition for mining the next block, which makes it more expensive to do. The market creates an equilibrium over time with some miners dropping out as the cost of mining isn't worth the payoff, but ultimately prices will land above the marginal cost of production for Bitcoin.
When Bitcoin undergoes a halving, it reduces the award miners receive for each block they confirm on the Bitcoin blockchain. That means supply grows more slowly, but demand doesn't change. At the same time, miners exhibit less selling pressure in the market. Those two factors typically lead to higher prices over time, as Bitcoin undergoes halvings once every four years or so. The next Bitcoin halving will take place in early 2028, and another will occur in 2032.
Overall, Bernstein analysts expect Bitcoin to trade for about 1.5 times the marginal cost of production. That puts its base case at $200,000 for next year. But as production costs increase, the analysts see the price soaring to $500,000 by 2029 and $1 million by 2033.
Is $1 million really possible?
The above analysts calls for a $1 million Bitcoin in just a few years are based on fundamental analysis. This is the real deal. But it's important to note they make a lot of educated guesses, and those guesses could turn out to be dead wrong.
Bitcoin is an extremely volatile asset with limited intrinsic value, especially when you consider the utility of newer cryptocurrencies that improve upon the foundational blockchain technology. As such, it could easily become nearly worthless over time if the above thesis doesn't hold true.
That said, the analysts appear to be directionally accurate. The future looks bright for Bitcoin, whether or not it reaches $1 million by 2030. It may be worth putting a small amount of your portfolio in the asset class, either directly or through a spot Bitcoin ETF like the iShares Bitcoin Trust.
