ARK Invest CEO Cathie Wood believes that the price of bitcoin will rise, driven by finite supply and growing demand.
In a new video, Wood notes that the current bitcoin market cap of about $1 trillion is small compared to its possible future valuation.
“If we add all the potential demand to the limited supply, in the long run we will find incredible numbers. We are at the beginning. A trillion dollars is nothing compared to where this will end up.”
The CEO of ARK Invest points out what we are seeing happening lately, namely that various established companies are adding bitcoin to their balance sheets, as proof of the growing demand.
“The most amazing development recently, and we did not expect it when we wrote our institutional report, is that companies are now diversifying their cash with bitcoin. We have seen Square do it, Tesla do it and MicroStrategy is defining its strategy now. ”
Wood says bitcoin has been the “first new asset class” for nearly half a millennium and that the low correlation with other assets makes it attractive to investors.
The CEO of ARK Invest advises investors seeking to minimise volatility or maximise their Sharpe Ratio, a measure of excess return that can be obtained from exposure to a riskier environment.
After conducting a Monte Carlo simulation, a model used to estimate various possible outcomes of an uncertain event, Wood discovers that institutions must allocate a significant portion of their portfolio to bitcoin.
“We’ve done a study, it’s on our ARK-invest website, about institutional involvement in this thing. I think we did a million Monte Carlo simulations”.
“If institutions use this kind of analysis where they might want to minimise volatility or, at the other end, maximise the Sharpe ratio, they should probably put between 2.5 and 6.5% of their bitcoin portfolio.”