Two big factors could result in another big run-up in the price of this cryptocurrency.
One thing that attracts a lot of investors to cryptocurrency is the potential for quick and staggering price increases.
For example, Bitcoin (BTC -0.67%) climbed 164% in the six months from October 2023 to April 2024. And while the leading cryptocurrency has mostly traded sideways since then, some analysts see another big price increase coming during the next few months.
The analysts at Bernstein recently put out a report detailing their expectation that Bitcoin will hit $200,000 by the end of 2025. And that’s a “conservative” outlook, they said. That’s roughly 180% higher than the current price.
There are a few reasons Bernstein is so bullish on Bitcoin.
Image source: Getty Images.
This trend is just getting started
The biggest factor that drove Bitcoin’s 164% run-up in price was the introduction of spot Bitcoin exchange-traded funds (ETFs). In January, the Securities and Exchange Commission approved 11 ETFs that invest directly in Bitcoin. The new ETFs make it much easier to invest in Bitcoin since you can buy an ETF in a regular brokerage account.
So far, more than $20 billion has flowed into Bitcoin ETFs. But there’s still a long runway ahead. The vast majority of those inflows have come from retail investors, not institutions. Bernstein sees more institutional investor adoption on the horizon as they develop strategies to deal with the liquidity and volatility risks related to Bitcoin. Clearer regulations around Bitcoin could also make institutional investors more confident about increasing their exposure to the cryptocurrency.
As more and more institutions shift some of their portfolio to Bitcoin, it will drive significant demand for the cryptocurrency, sending the price higher. Ark Invest analysts, led by Cathie Wood, estimate a 1% global allocation by institutions to Bitcoin would push the price to $120,000.
As a result of continued inflows and the appreciation in Bitcoin’s price, Bernstein expects the assets accumulated by the Bitcoin ETFs will more than triple from about $60 billion to $190 billion by the end of 2025.
The economics of Bitcoin demand higher pricing
Earlier this year, Bitcoin executed another halving, which is when the rewards for mining new coins is cut in half. In fact, that was another reason for the run-up in price at the start of the year, as Bitcoin has historically moved higher after each halving. The run-up has yet to materialize so far, though that doesn’t mean it won’t happen eventually.
The price of Bitcoin is based on the law of supply and demand. When Bitcoin undergoes a halving, the supply grows more slowly. Additionally, the Bernstein report notes, the number of Bitcoin that miners are selling into the market also drops. Miners have to liquidate at least some of the Bitcoin they mine to cover the costs of their operations.
Importantly, miners won’t continue to operate if the marginal cost of mining falls below the value received for very long. The marginal cost of producing Bitcoin goes up with a halving. Bernstein estimates the price will reflect 1.5 times the marginal cost of production between 2024 and 2027. That translates into a price of $200,000 in 2025.
Will Bitcoin reach $200,000?
The factors outlined by Bernstein’s analysts are solid reasons to expect the price of Bitcoin to rise over time. I see supply growth slowing, selling pressure decreasing, and demand increasing over the next few years as a result of the halving and increased institutional adoption. Whether it all adds up to $200,000 per Bitcoin by the end of next year remains to be seen, but Bernstein probably is at least directionally accurate.
Adam Levy has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.