Fundstrat analyst Tom Lee recently told CNBC that he expects Bitcoin (BTC 0.29%) to finish the current year "well above $100,000." While somewhat vague, that forecast implies at least 5% upside in December from its current price of $95,000.
Last week, Lee made an ever bolder prediction: Bitcoin could exceed $250,000 within 12 months, due in part to the adoption of spot Bitcoin ETFs like the iShares Bitcoin Trust (IBIT -1.14%). That forecast implies 160% upside in the cryptocurrency, and it implies equivalent upside in the index fund.
Here's what investors should know.
These major catalysts could drive Bitcoin (and the iShares Bitcoin ETF) higher
Tom Lee is bullish on Bitcoin for four reasons: The Federal Reserve is cutting interest rates, spot Bitcoin ETFs are boosting demand, halving events are reducing new supply, and the incoming Trump administration may designate Bitcoin as a strategic reserve asset.
Interest Rate Cuts: The Federal Reserve started cutting interest rates in September 2024, putting an end to the most aggressive hiking cycle in decades. That bodes well for Bitcoin and other risk assets because investors tend to feel comfortable taking on more risk as the cost of borrowing declines.
Spot Bitcoin ETFs: The SEC earlier this year approved spot Bitcoin ETFs, funds that could unlocked substantial demand. They let investors add Bitcoin exposure to existing brokerage accounts, eliminating the hassle and high fees associated with cryptocurrency exchanges. Importantly, while spot Bitcoin ETFs are still a relatively new asset class, their market debut has been hailed as the most successful ETF launch of all time.
Particularly important is the rapid pace at which institutional investors are purchasing the funds. "Bitcoin ETFs are being adopted by institutions at the fastest rate of any ETF in history," according to Matt Hougan, chief investment officer at Bitwise. Institutional investors have about $120 trillion in assets under management, so demand from that corner of the market could have a profound impact on Bitcoin's price.
Importantly, the iShares Bitcoin Trust has been the most successful of the 11 spot Bitcoin ETFs approved by the SEC. It reached $10 billion in assets more quickly than any ETF in history, and it currently accounts for about half of all assets invested in spot Bitcoin ETFs.
Bitcoin Halving: Bitcoin miners earn block subsidies for validating transactions, but the payout is reduced by 50% (halved) every 210,000 blocks. Those events limit the Bitcoin supply to 21 million coins, and each halving curtails selling pressure by reducing the amount of newly minted Bitcoin paid out to miners.
The most recent halving took place on April 19, 2024, when Bitcoin traded at approximately $64,000. But the cryptocurrency has historically notched huge gains during the next 12 to 18 months. For instance, its peak price change between the third and fourth halving events exceeded 700%.
Bitcoin Strategic Reserve: President-elect Donald Trump has proposed making Bitcoin a reserve asset, and Senator Cynthia Lummis (R-Wyo.) has introduced relevant legislation called the Bitcoin Act of 2024. That bill could boost demand in two ways: It would position the government as a Bitcoin buyer, and it would further legitimize the cryptocurrency among institutional investors.
Image source: Getty Images.
A word of caution for prospective investors
Tom Lee makes a compelling argument for why Bitcoin could exceed $100,000 in 2024 and $250,000 in 2025. Like any asset, Bitcoin's price is a product of supply and demand. Interest rate cuts, spot Bitcoin ETFs, and the creation of a strategic Bitcoin reserve would all boost demand, while periodic halving events limit supply. That could certainly propel the cryptocurrency (and spot Bitcoin ETFs) higher.
However, investors should remember that Bitcoin has historically been a volatile asset. It has fallen more than 50% from a record high three times in the last five years, and it fell more than 75% on one occasion. Similar volatility is all but guaranteed in the future. So, anyone uncomfortable with that idea should avoid Bitcoin and spot Bitcoin ETFs.
Alternatively, investors that can handle sharp declines should consider buying a position in the iShares Bitcoin Trust. The index fund is issued by BlackRock, the largest asset manager in the world. And it has a reasonable expense ratio of 0.25%, which means investors will pay just $2.50 annually on every $1,000 invested in the fund.
As a final caveat, there is no guarantee Bitcoin comes anywhere close to $250,000 next year. But the iShares Bitcoin Trust is still a brilliant way for risk-tolerant investors to diversify their portfolios at a time when many stocks are expensive by historical standards.
