1 Top Cryptocurrency to Buy Before It Rises 6,350% According to Cathie Wood

Cathie Wood and her team at Ark Invest believe that cryptocurrency represents a paradigm shift in the global monetary system. Crypto is accessible, global and private, three factors that make it a great way to store and transfer money.

But Wood also believes that the cryptocurrency market will be governed by power laws. In other words, only a few cryptocurrencies will become popular enough to see their potential value materialize.

If there is one cryptocurrency that is likely to benefit from power law dynamics, this is it Bitcoin (BTC -0.44%). It is already the largest cryptocurrency in the world, accounting for over 57% of the entire market. But Wood suggests that Bitcoin’s dominance could grow further, fueled by a price appreciation of around 6,350% to reach $3.8 million per Bitcoin.

Here’s why.

Image source: Getty Images.

Big investors haven’t started buying yet

Wood’s astronomical bull case for Bitcoin is based on the idea that institutional adoption remains nascent. Big asset managers have basically invested $0 in cryptocurrency, but that could change in the next few years.

The driving force behind this change is the introduction of spot Bitcoin ETFs, which the SEC approved earlier this year. Wood believes the introduction and strong adoption of those ETFs could add an additional $2.3 million per Bitcoin to Ark Invest’s 2023 bull case, which was $1.5 million. This is driven by a 5% portfolio allocation among institutional investors.

There is still a long way to go to get there. Ark says there is a global investable asset base of $250 trillion. 13F filings with the SEC from US institutional investors show just $11 billion invested in major Bitcoin spot ETFs. A 5% allocation would be $12.5 trillion, more than a 1,000-fold increase. Of course, 13F filings do not account for any direct holdings of Bitcoin between institutions.

A 5% allocation to Bitcoin will not happen overnight. It will take years for that to happen, if it ever does. Institutional investors currently allocate around 4% of their total investable assets to gold, mainly using ETFs to do so.

For Bitcoin to reach Wood’s outlook, it may have to replace gold’s role in portfolios entirely. Maybe it’s doable. Many call Bitcoin digital gold. But Wood may be too optimistic.

How High Can Bitcoin Go?

While institutional adoption remains a big catalyst for Bitcoin’s growth, Wood’s price target of $3.8 million per coin seems beyond reasonable. However, the price of Bitcoin is largely dictated by supply and demand. With relatively fixed supply, an influx of investors should produce strong price appreciation over time.

While Bitcoin ETFs have seen strong early adoption, inflows have slowed considerably in recent months. This correlates with the price of the cryptocurrency, which has stagnated since hitting an all-time high of $73,750 in March. The cryptocurrency is currently trading around $60,000 per coin.

But a large institutional buyer could be a driving force in the next step for crypto and could trigger a cascade of institutional investment. Widespread adoption of cryptocurrency across the investment world will take decades, however.

I think Wood is right that power laws will play a role here, and Bitcoin will be the big beneficiary of more investors looking to cryptocurrencies to diversify their portfolios. As such, it could play a role in your portfolio and be worth a small allocation. Whether it’s 5% or 1% or 10% is up to you. But it is reasonable to expect that the price of Bitcoin will continue to rise as more investors add it to their portfolios. The upward path, however, is likely to be quite volatile.