Tom Lee is the head of research at Fundstrat Global Advisors. He correctly anticipated the stock market rally that lifted the S&P 500 out of bear market territory last year. Specifically, when Wall Street’s median price target implied a 6% upside for 2023, Lee said the S&P 500 would gain 24%.
Lo and behold, the S&P 500 advanced by 24% last year as cooling inflation and the anticipation of interest rate cuts gave investors reasons to be bullish. More recently, Lee forecast that the S&P 500 would hit 6,000 in 2024, and predicted Bitcoin(CRYPTO: BTC) would top $100,000 this year. He was right on both counts.
Now, Lee is back with a shocking forecast for 2025: Bitcoin could hit $250,000. That would amount to an approximately 150% gain from its current price of around $100,000.
Lee earlier this year outlined his three-point investment thesis for Bitcoin during an interview with CNBC: First, he said, demand for it is still rising due to the growth of spot Bitcoin exchange-traded funds (ETFs); second, the supply of newly minted Bitcoin has shrunk due to the recent halving of its block subsidies; and third, interest rates are falling, which is generally good for risk assets.
Spot Bitcoin ETFs: After the Securities and Exchange Commission gave its approval, 11 spot Bitcoin ETFs hit the U.S. markets in January 2024. Those funds let investors add Bitcoin to their existing brokerage accounts, which is easier (and often cheaper) than maintaining a separate account with a cryptocurrency exchange. Consequently, spot Bitcoin ETFs should continue to boost demand for the crypto among retail and institutional investors.
Indeed, Matt Hougan, chief investment officer at crypto index fund manager Bitwise Asset Management, recently wrote, “Bitcoin ETFs are being adopted by institutions at the fastest rate of any ETF in history.” That is particularly good news for those who hold Bitcoin because institutional investors have $120 trillion in assets under management, and the price of Bitcoin should trend higher as they allocate more funds to it.
Analysts have declared spot Bitcoin ETFs to be the most successful ETF launches in history. But the iShares Bitcoin Trust by BlackRock has been particularly impressive. It hit $10 billion in assets faster than any ETF on record, according to The Wall Street Journal. It now has $35 billion in net inflows, which is more than the other 10 spot Bitcoin ETFs combined.
Bitcoin halving events: Block rewards are financial incentives that blend transaction fees and block subsidies (newly minted Bitcoin). Block rewards are paid to crypto miners for validating transactions, but the subsidies are reduced by 50% each time 210,000 blocks are added to the Bitcoin blockchain. That happens approximately once every four years.
These halving events are part of the system that limits Bitcoin’s ultimate total supply to 21 million coins, and they decrease selling pressure by limiting the amount of newly minted currency that miners will be able to sell. The last halving took place in April, when Bitcoin traded at $64,000. But historically, Bitcoin’s price chart has usually peaked one to two years after a halving. For instance, in November 2021, Bitcoin peaked at 690% above its price at the third halving, which took place in May 2020.
Interest rate cuts: In September, the Federal Reserve began lowering the federal funds rate, a benchmark interest rate that influences most other rates across the economy. Bitcoin has historically performed best in low-rate environments, perhaps because investors are more comfortable with risk assets when lending is less restrictive. That said, Bitcoin is a relatively new asset class, so the amount of historical data about it is limited.
Image source: Getty Images.
In a recent interview with financier Anthony Scaramucci, Lee described Bitcoin as a hyper-volatile asset. To that end, Lee believes Bitcoin could see a pullback in early 2025, such that its price falls to $60,000. After that, however, he predicts it will increase to $250,000 before the year ends.
Also, Lee pointed out that Bitcoin typically makes most of its gains for each year within a single 10-day period. Crypto investors who miss out on those few days’ gains would often wind up with a negative return for that entire year. In other words, it would be a mistake to buy Bitcoin without real conviction. Anyone who is likely to get scared out of the asset by a period of steep declines should avoid Bitcoin.
In closing, investors should bear in mind that no one knows the future. Lee has made prescient calls in the past, and he may be correct about Bitcoin hitting $250,000 in 2025. But investors shouldn’t put a single cent into the cryptocurrency if they aren’t prepared to lose it.
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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
