Big Ideas 2023| Bitcoin’s Optimal Allocation at 19.4%, Potential Target Price of $2.3 Million

Ark Invest mentioned in its annual report “BIG IDEAS 2024” an analysis of various fields including AI, Bitcoin, public chains, electric vehicles, robots, 3D printing, etc. The following is a summary of the Bitcoin section.

Chapter 3: Bitcoin Asset Allocation
Bitcoin surpasses all mainstream assets in the “long-term time frame”
Bitcoin’s correlation with traditional finance remains low
Optimal allocation of Bitcoin: 19.4%
How can Bitcoin reach $2.3 million?

Chapter 4: Bitcoin in 2023
Bitcoin’s price increased by 155% in 2023
Ark’s reliable indicator: On-chain market mean
Bitcoin as a safe haven asset
The four catalysts for Bitcoin in 2024

Chapter 3: Bitcoin Asset Allocation
This chapter mainly discusses how much capital investors should allocate to Bitcoin under the premise of risk control and maximizing returns.

Additionally, Ark also mentioned that if about 19% of global investable assets are invested in Bitcoin, its price will reach $2.3 million.

Bitcoin surpasses all mainstream assets in the “long-term time frame”
Ark compared the performance of assets such as gold, commodities, real estate, bonds, stocks, emerging markets, etc. in the past few years, indicating that Bitcoin has surpassed all mainstream assets in terms of long-term annual returns.

However, this may not be entirely fair to mainstream assets, as they have a long history and their volatility has already become stable. Looking at the past three years, Bitcoin’s average annual growth rate is slightly lower than that of commodities.

Bitcoin’s correlation with traditional finance remains low
Although Bitcoin futures and spot ETFs have emerged, it seems that Bitcoin has not yet been fully “tamed” by traditional finance. Ark pointed out that Bitcoin’s correlation with traditional asset classes is relatively low at 0.27, but even lower for gold and commodities.

Asset Class Correlation
Optimal allocation of Bitcoin: 19.4%
Based on maximizing risk-adjusted returns and setting a 5-year investment period, Ark suggests the following allocation:

Gold: 40.7%
Stocks: 30.2%
Bitcoin: 19.4%
Commodities: 9.6%

How can Bitcoin reach $2.3 million?
Last year, Ark made predictions in different market environments, and believed that Bitcoin would reach $258,500 to $1.48 million by 2030.

This year, Ark divided the “global investable assets” of $250 trillion and the allocation percentage to Bitcoin as follows:
1% allocation: Bitcoin will reach $120,000
4.8% allocation: $550,000
19.4% allocation: $2.3 million

Chapter 4: Bitcoin in 2023
Ark outlined how Bitcoin recovered in 2022 amid various negative factors and showed its resilience as a hedge asset in 2023. It also mentioned the impact of the introduction of Bitcoin spot ETFs.

Bitcoin’s price increased by 155% in 2023
This chapter starts with the full-year trend of Bitcoin in 2023 and marks most significant events, from the Silicon Valley Bank crisis at the beginning of the year to the resignation of CZ, the founder of Binance, as CEO at the end of the year. Bitcoin’s surge also pushed the total market capitalization of cryptocurrencies to $827 billion.

Ark’s reliable indicator: On-chain market mean
The report states that Ark has always used the on-chain market mean as the original indicator, which has been a reliable dividing line for identifying Bitcoin’s rise and fall. From past trends, it can be observed that when the Bitcoin price is higher than the on-chain market mean, it is usually the early stage of a bull market.

Bitcoin as a safe haven asset
During the banking crisis in the United States in March last year, the US KBW Bank Index plummeted, while Bitcoin quickly soared, rising more than 40% by May, emphasizing its role as a risk hedging asset.

The four catalysts for Bitcoin in 2024
Bitcoin halving: Expected inflation rate reduced from 1.8% to 0.9%
Institutional adoption: BlackRock CEO Larry Fink’s significant change in views on Bitcoin
Bitcoin spot ETF: Further reducing the learning curve and complexity of investing in BTC
Regulatory developments: Bankruptcies such as Celsius and FTX have driven regulatory developments, including the implementation of the EU MiCA Act.

Ark Invest’s annual forecast report has certain reference value, especially considering the founder’s long-term optimism about Bitcoin and the research team’s in-depth study of Bitcoin. The advantages of Bitcoin listed in the report, such as scarcity, security, globalization, etc., are convincing to a certain extent.

However, some of the predictions and positions in the report should be verified, especially considering that Ark is also one of the issuers of Bitcoin spot ETFs. Looking back at Ark’s previous predictions, they have always been overly optimistic about the extent of Bitcoin’s rise.

(Based on the article provided)

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