At its recent price of about $106,000, Bitcoin (CRYPTO: BTC) is obviously a long way from $200,000. Still, given that the coin has gained more than 150% during the past 12 months alone, it isn’t so outlandish to think about another bumper crop year.
There’s reason to believe such heights are not only possible, but also, in the long term, fairly probable. But three major things need to happen to increase the odds that Bitcoin hits the $200,000 mark. Let’s take a look at each.
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Bitcoin, while no longer a speculative asset, is still one that many investors, especially those in major financial institutions, consider risky.
That means that when it’s expensive for financial institutions to borrow money, as determined by the interest rates set by central banks, less money tends to be allocated to Bitcoin, as safer assets take priority when capital is scarce. This is one reason Bitcoin’s price is correlated with the movement of stocks. For the coin’s price to continue to rise, interest rates must continue to fall, and global liquidity must continue to rise accordingly.
After cutting its benchmark rate in 2024, the Federal Reserve is expected to slash interest rates at least once in 2025. In the EU more sharp cuts are anticipated. The central bank in the U.K. is also slated to make a slew of cuts of its own. And in China, regulators are saying that similar decreases to the main interest rate are very much on the table for this year.
All of these actions will create an environment in which investors have cheap capital to channel into risky assets like Bitcoin. Still, if something unexpected happens, like a spike in global inflation, liquidity could potentially make a turnaround and start declining.
The prices of cryptocurrencies increase when buyers compete with each other to buy as many coins as they want. When new buyers arrive on the scene with fresh capital, the price of the asset tends to rise.
So for Bitcoin to continue to climb and eventually hit $200,000, more people need to buy. Roughly 106 million people hold Bitcoin worldwide, including about 22% of the adult population of the U.S. Billions of people haven’t purchased any yet.
If history is any indication, some of them will take the plunge when prices are high, as awareness of the currency will rise accordingly. In other words, if Bitcoin’s price continues to rise, making headlines in the process, more people will buy in.
In particular, a certain type of new investor is going to be an especially powerful catalyst for price increases, so let’s examine that group next.
Governments, financial institutions, major corporations, and major nongovernmental organizations have a lot more money than most individuals. If those types of organizations continue to accumulate Bitcoin, the coin’s path to much greater heights is all but assured.
In mid-2024, governments held about 2.2% of the coin’s total supply, but that proportion may increase, and recent developments suggest that this process is well underway.
The development of a Bitcoin reserve in the U.S. might be a serious focus of the new presidential administration. Russia, Poland, and Brazil are all considering such reserves. El Salvador, which adopted Bitcoin as legal tender in 2021, is already an example of successful cryptocurrency policy-making.
Furthermore, large companies like Tesla also hold Bitcoin; the electric carmaker’s holdings total upward of $1.2 billion. Others are likely to follow, especially if prices continue to rise.
When they do, it will create buying pressure, which will drive the price up. If these people and institutions commit enough capital as a group, it could be enough to drive Bitcon’s price over $200,000 within a few years or so.
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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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