Here’s what one of the world’s smartest investors thinks about Bitcoin

Things have been interesting too Bitcoin (BTC -1.17%) the last month to say the least. After being routed through May, June and July, Bitcoin is now up more than 30% since its mid-July low. But what could have caused this rise? Cathie Wood and her team at ARK Invest think they may have some ideas about the current Bitcoin market and what the future may hold.

Wood shed further light on this trend and the rationale behind the firm’s belief as to why this upturn occurred. She highlighted the 200-week moving average (WMA) as a consistent support level for Bitcoin. The 200 WMA is around $22,000, and when Bitcoin fell below that price, analysts worried that without a quick recovery of that level, a further drop to as low as $10,000 could happen. But Bitcoin quickly bounced back, breaking above the support line, and has since gained some much-needed momentum.

Wood also mentioned that while the 2022 plunge felt catastrophic at times, investors should take into account that Bitcoin had bigger falls in the past. The last price drop was around 70% from the peak. Yet previous declines have produced pullbacks of more than 80%.

The most important talking point

ARK Invest also believes that the other reassuring news was an agreement between one of the most popular cryptocurrency exchanges, Coin base (COIN -5.48%)and the world’s largest investment management firm, Black stone (BLK -1.83%). This collaboration will allow customers of BlackRock’s Aladdin investment technology software to seamlessly purchase Bitcoin.

Based on current numbers, there could be as much as $40 trillion in assets within the Aladdin ecosystem. Wood and her team see this as some of the most promising news in Bitcoin’s legitimation as an asset.

The most interesting part of Wood’s analysis of BlackRock developments involves a bit of speculation, but a bit of speculation never hurts. In her final thoughts about the Aladdin clients who can now buy Bitcoin, she assumed that at least a small portion of that $40 trillion would be allocated to Bitcoin.

Wood used a study conducted by ARK a while back that examined how institutional investors would strategize crypto allocations. They argued that if an institution wanted to benefit from crypto but minimize volatility, it would put 2.5% into Bitcoin. If investors were more interested in yield, ARK analysts theorized that these institutions could allocate as much as 6.5%.

In her video, Wood started on the low end, suggesting that if 2.5% of that $US40 trillion ($1 trillion) were to make it to Bitcoin, then the most valuable cryptocurrency could more than double from today’s prices. And that is only based on the involvement of institutional investors. That doesn’t count the inevitable onslaught from retail investors who will also follow suit.

Now let’s say that 6.5% of $40 trillion, or $2.5 trillion, found its way into Bitcoin. That would represent a gain of nearly 400% and would put the price of one Bitcoin at around $125,000, much more than the record of nearly $69,000.

Wood ended the discussion of Bitcoin with even more exciting insights. She and her team believe that despite the roughly 18 million bitcoins in circulation today, not all of them are liquid (in other words, they are not in the market to buy). ARK speculates that about 14 million bitcoins are held by long-term holders, and there are only about 4 million available for purchase today. Wood hinted at the idea that with an even smaller number of bitcoins available for trading, estimates for a double or quadruple price increase could be on the low end.

A necessary pinch of salt

But just because Cathie Wood said so doesn’t mean everything has to play out that way. Everyone likes to speculate, but the development that deserves the most attention is the move by BlackRock. This collaboration with Coinbase is arguably one of the most important events in making it easier for institutions to start buying Bitcoin.

Before this integration, it was difficult for these types of investors to hold Bitcoin due to lack of resources and clarity. Now that BlackRock has arrived, Aladdin clients should have the tools needed to properly and successfully add Bitcoin to their portfolios.