This year got off to a hot start in the market. A euphoric story about artificial intelligence (AI) S&P500 Record your level.Naturally, the focus was on technology. Nasdaq Composite are moving forward in tandem and setting records of their own.
But what investors fail to see is that it's not just stocks that are witnessing extraordinary enthusiasm.top cryptocurrencies Bitcoin (Cryptocurrency: BTC) It has been rapidly increasing recently. Bitcoin's price has typically fluctuated dramatically during its recent rally, but one investor in particular sees significant upside potential.
Ark Invest CEO Cathie Wood recently set a price target for Bitcoin of $2.3 million, implying an upside of more than 3,600% from current trading levels.
Is now the time to buy Bitcoin? Let's dig deeper and assess what's driving the renewed interest in Bitcoin and decide if crypto is the right investment option for you.
What's happening with Bitcoin?
Bitcoin prices have risen 60% so far this year. On March 5th, Bitcoin briefly hit a new all-time high, reaching just over $69,000.
However, it is important to note that the price of Bitcoin has fallen by about 10% after a temporary peak.
Nevertheless, Cathie Wood believes there is room for Bitcoin to continue operating, and room for more. Let's analyze what factors are influencing recent price trends.
Cathie Wood's latest phone call
In his annual report, Big Ideas, Wood outlined his stance on why Bitcoin could rise significantly from its current trading levels.
Fundamentally, like any other asset class, the price of Bitcoin is determined by supply and demand dynamics. However, what makes Bitcoin unique is that the amount of coins that can be mined is limited. For this reason, Bitcoin is perceived as rare, similar to commodities such as gold.
Wood argues that the optimal portfolio allocation for Bitcoin should be around 19%. If $250 trillion of investable capital worldwide were allocated to Bitcoin exposure as proposed by Wood, prices would rise significantly. More specifically, approximately $48 trillion will be allocated for the total supply of 21 million Bitcoins, which means that the price per coin will be his $2.3 million.
Should you invest in Bitcoin now?
It's understandable how Wood's predictions can instill fear of missing out (FOMO) in cryptocurrencies. But for long-term investors, it's more important to take a step back and look at the big picture.
One of the most likely reasons why Bitcoin is surging right now is because the next halving event is scheduled for April, slowing the rate of increase in Bitcoin's supply. Additionally, earlier this year the Securities and Exchange Commission (SEC) granted approval for a number of spot Bitcoin exchange traded funds (ETFs).
The idea behind these ETFs is that investors can gain exposure to Bitcoin without purchasing the actual coin itself. Additionally, some believe that ETFs will help build more support from institutional investors, thereby giving cryptocurrencies some much-needed legitimacy.
In my view, Bitcoin enjoys some momentum purely due to broader market trends. In fact, cryptocurrencies belong to a very different investment class from traditional instruments such as stocks and bonds. But even alternative investments can sometimes attract unusual attention for no concrete, identifiable reason.
Essentially, I consider Bitcoin to be primarily speculative. The risk-reward profile is difficult to justify, especially given that the entire crypto market is still in its infancy. So even if Wood's predictions are correct, the timeline for reaching her proposed price target is unclear.
I believe there are many other ways to reduce risk and gain exposure than investing in Bitcoin. In addition to spot ETFs, you can also invest in companies such as: coinbase or robin hood It can offer a passive and more diverse way to participate in cryptocurrency investing. Additionally, these stocks represent an isolated approach to investing in Bitcoin, as each company offers other products and services.
Even if it momentarily hits a new high, I would like to hold off on Bitcoin for now. I want to avoid buying into the hype and momentum built around lofty predictions, as there are smarter investment opportunities out there.
Should you invest $1,000 in Bitcoin right now?
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Adam Spatacco has a position in Coinbase Global. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
Cathie Wood thinks this top cryptocurrency could soar more than 3,600%. Is it time to buy?Originally published by The Motley Fool
