Cathie Wood Says $1M Bitcoin (Again); Why She Might Be Right

Summary Cathie Wood has reiterated her $1 million target for Bitcoin. Although I disagree with how she got there, I can also make an argument to support this price target. $1 million is possible, but there will be many ups and downs before that. Thesis Summary Recently, Cathie Wood reiterated her belief that Bitcoin ( BTC-USD ) could reach $1 million by 2030 . She made these remarks in a Bloomberg interview, but this thesis is actually based on a report by ARK Invest from a few months back. ARK looks at Bitcoin’s potential market cap in 2030 based on various use cases. I analyzed these numbers in a previous article, reaching the conclusion that, from a fundamental perspective, it seemed like an ambitious target. However, in this article, I’d like to present an alternative methodology based on the stock-to-flow model and technical analysis, which does indeed support the claims that Bitcoin could reach $1 million by 2030 The numbers don’t add up The image below shows how ARK invests believes Bitcoin could reach a value of over $1 million. ARK Invest Report (ARK Invest) The ARK report forecasts a market cap for the Bitcoin market of $21.5 trillion, and amongst other things, assumes Bitcoin will take market share from gold, become a common holding for companies, and projects 25% of US banking transactions will be settled in Bitcoin. In a previous article , I went in-depth into each of these segments, making my own calculations and reaching a slightly less bullish projection. I forecasted a potential market cap of $12.85 trillion, which would mean a Bitcoin price of $613,000. However, a $1 million price target is supported by the stock-2-flow model, and we can also reach this target using Elliott Waves. The S2F model The stock-to-flow model (S2F model) is a popular pricing model for Bitcoin. We can see it below. S2F model (S2Fmultiple) The Stock-to-flow ratio is obtained by calculating how long it would take at the current rate of production (flow) to produce an equal amount to the current stock. For example, it is estimated that 3,000 metric tonnes of gold are extracted every year and that there are 185,000 metric tonnes of gold already mined in the world. This means gold has an S2F ratio of 62. Now, if we calculate the S2F value for Bitcoin and apply this mathematical formula shown in the box, we get a projection of the price of Bitcoin which is shown in the red line in the chart. Notice how the value of Bitcoin using this model goes up over time as more Bitcoin halvings take place. This is because halving events reduce the production capacity of Bitcoin, which increases the S2F ratio. Since its inception, Bitcoin’s price has oscillated around the projected price of the S2F model, though the current price is quite far from the model’s target price for today, which should be around $112,000. In any case, if this model is accurate, then following the next halving, Bitcoin should reach a price of $1.285 million, and this would happen sometime around 2025. The Technicals Line Up We can also reach a target price for Bitcoin using Elliott Wave Theory. However, I must say that there are different ways of calculating price targets, and these projections aren’t completely reliable. Bitcoin Price Analysis (Author's work) The chart above shows a potential long-term count for Bitcoin. We have an initial five-wave move up into 2014 which is a large degree wave 1. The bear market in 2015 was our wave 2. The following rally, which led to the 2018 peak was the wave 1 of a five-wave structure of our large-degree wave 3. Now, we are currently completing yet another five-wave structure shown in the smaller roman numerals, within a wave 3 inside the larger 3. Last year's bear market was part of a wave iv, which may still be ongoing. However, let’s assume that Bitcoin has found a bottom around the $15K mark. We can now project the length of wave v of 3, and then from there, making some further assumptions, we could project the following waves 4 and final wave 5 of 3. So, firstly, there are three ways of calculating a wave 5/v in EWT. Wave 5 is equal to wave 1 Wave 5 is equal to 61.8% of waves 1+3 Wave 5 is equal to the inverse 1.618 ext of wave 4 In this chart, if wave v were equal to wave i, we would not even rally above the previous high, so let’s discard that option. If we measure the length of i+iii from the bottom of wave iv, the 61.8% ext lands at a price of $94,000. This is shown on the chart above. Finally, we could also have the inverse 1.618 ext of wave iv, leading us to a more bullish target of around $150,000. So, let’s assume that Bitcoin reaches $94,000 in wave 3. Then where would wave 4 land? The most likely outcome according to EWT would be a 50% retracement of the wave 3, which lands us at $17,246. Bitcoin Price Analysis (Author's work) In EWT, it’s also usual for higher degree wave 4s to overlap with smaller degree wave 4s, so this price area makes a lot of sense. If we, once again, measure waves 1+3, (the length of the black line), from the bottom of wave 4, ($17,246) the 0.618 ext should be where wave 5 lands, which is at $1.09 million. If we took the length of wave 1 instead, we’d reach a target of $1.7, and if instead, we use the inverse 1.618 of wave 4, we’d get a much less bullish price target of around $200,000. Now, to calculate this precisely, we’d need to know where exactly the next wave 3 and 4 are going to end, but this gives us a decent idea of where we should be heading in the coming years. I would expect wave 3 to take place in 2025 following the next halving. We’d then enter a bear market as is usual, which would be wave 4 during 2026-2028, and then we would rally again following the subsequent halving, which would mean that wave 3 could top around 2030, which is when ARK Invest believes Bitcoin could be worth $1 million. Final Thoughts ARK’s theory that Bitcoin could reach $1 million by 2030 is supported by the stock-to-flow model and Elliott Wave projections. However, we must understand that there are limitations to what technical analysis can do in such long time frames. Personally, I have my eyes set on the next bull phase, which will see Bitcoin reach new all-time highs, but I don’t think it will land us anywhere near $1 million.