Could Bitcoin be worth more than $150,000?

After being decimated this year, Bitcoin (BTC 0.63%) may be poised to be worth more than some of the most valuable companies, which Microsoft, appleand Alphabet.

Bitcoin reached a new all-time high in price and market capitalization last November. At the time, one Bitcoin was worth just $70,000 and the market cap came in at just over $1.2 trillion – make sure you remember this number.

Since reaching these records, the economic landscape has changed drastically, for better or for worse. Over the past nine months, investors began looking to minimize risk in their portfolios. Persistent inflation, increased interest rates and fears of a looming recession have slowed economic growth and investors’ appetite for risky assets.

As a result, since they are generally considered some of the riskiest assets, Bitcoin and all other cryptocurrencies have taken a big hit in 2022. Bitcoin shed more than 70% of its value at one point.

Even with a drop of this magnitude, there were also some positive developments. One of the most encouraging stories comes from the popular cryptocurrency exchange Coin base (COIN -3.50%) and the world’s largest investment manager, Black stone (BLK -2.63%). An early announcement in August revealed that Coinbase would partner with BlackRock to offer services that would allow BlackRock’s institutional clients to buy Bitcoin.

The plan is for Coinbase to integrate directly with Aladdin, BlackRock’s portfolio management software. It is believed that almost 40 trillion dollars are managed on the Aladdin platform – keep this number in mind as well.

ARK makes its claim

Based on this announcement, some analysts have begun to speculate on how much Bitcoin institutions might buy and what effects it might have on the price. Coincidentally, Cathie Wood’s ARK Invest team ran some numbers on what this would look like way back in 2020. In their analysis, ARK analysts ran a handful of simulations on what percentage of their portfolios should be allocated based on their risk profiles.

The results showed that institutional investors looking to minimize volatility should dedicate approximately 2.5% to Bitcoin. Let’s go back to the $40 trillion that Aladdin supports. If the institutional clients of BlackRock allocated 2.5% of $40 trillion to Bitcoin, that would mean $1 trillion would flow into Bitcoin’s market cap. With a market cap of $400 billion, an additional $1 trillion would more than double the value of Bitcoin and increase its total market capitalization to around $1.4 trillion. That’s almost halfway to the required $3 trillion market cap.

But the ARK analysis also found that institutional investors looking to take on more risk could theoretically allocate 6.5% of their portfolios to Bitcoin. That would mean about $2.5 billion more coming into Bitcoin. This additional $2.5 trillion would bring Bitcoin’s market cap to around $3 trillion. We can do a little more math and find that by dividing the market value by the number of bitcoins in circulation (about 19.1 million), one bitcoin will be worth about $156,000.

The case for more than $156,000

In his monthly update on all things financial, Wood touched on this development between Coinbase and BlackRock and speculated similarly. However, there was one thing that we haven’t gone into. Wood pointed out that despite approximately 19 million bitcoins in circulation, technically not all are available for purchase. Statistics show that only about 4 million are liquid, which means they are in the market for buying. The other approximately 14 million are held by investors.

Wood elaborated that if institutions are only left with 4 million bitcoins to buy, a simple case of limited supply and increased demand could send Bitcoin even higher than the $156,000 mark.

This is not to say that this will happen overnight or within the next year. Investors should use this time to gradually increase their Bitcoin positions. Current trends signal that institutions are becoming more interested in owning Bitcoin. These types of investors usually have much larger amounts of capital than private investors. If ARK analysts are correct, BlackRock investors could play an integral role in driving Bitcoin well past its all-time high.