ARK Invest manages the largest high-risk tech fund, ARK Innovation ETF. In a recent research report, the company details its famous call that Bitcoin may reach a million-dollar price by 2030.
Bitcoin in the Long Term
ARK Investment Management LLC (ARK Invest) recently published a new annual research report detailing its view on breakthrough technologies (freely available at ark-invest.com). The report contains as many as 153 slides and covers 13 main topics (Artificial Intelligence, Digital Consumers, Digital Wallets, Public Blockchains, Bitcoin, Smart Contract Networks, Precision Therapies, Molecular Cancer Diagnostics, Electric Vehicles, Autonomous Ride-Hail, Autonomous Logistics, Robotics and 3D Printing, Orbital Aerospace). Three of these topics (Public Blockchains, Bitcoin, and Smart Contract Networks) are relevant for crypto investors and traders.
In the report, ARK Invest details its famous call that Bitcoin may reach a million-dollar price by 2030. More specifically, the firm expects that Bitcoin price may exceed 1 million in 2030 in the bull case. The base case is $682,800 and the bear case is $258,500.
ARK’s 2030 Bitcoin Price Target*
* Colors correspond to assumptions in the table below
CAGR refers to a compound annual growth rate from 12/31/22 to 12/31/30
The forecast is based on the concept of a total addressable market (TAM), varying base/bull/bear cases by a penetration rate. The company discloses some assumptions regarding the forecast. I consider it the most interesting part of the report since it allows roughly estimating the price target with different assumptions, making some kind of sensitivity analysis.
ARK’s 2030 Bitcoin Price Target Assumptions
TAM is a total addressable market
The first assumption is Bitcoin as digital gold. I think the assumption itself is fair enough, but the 20% penetration rate even in the bear case is way too optimistic. Nevertheless, gold is about 12 times larger than all crypto in terms of market cap, so a more reasonable assumption still provides a strong tailwind for Bitcoin. My approximate estimate based on ARK’s charts is that 5% penetration as digital gold means a $30,000 price of Bitcoin even without accounting for Bitcoin's other use cases.
The next assumption is more questionable. Institutional investor assets are indeed huge. For example, just 3 largest S&P 500 ETFs, SPDR S&P 500 ETF Trust (SPY), iShares Core S&P 500 ETF (IVV), and Vanguard 500 Index Fund (VOO), have assets under management almost equal to total crypto market cap (about 1 trillion dollars). Total figures of stocks and bonds under management make crypto tiny in comparison. However, I doubt that in the foreseeable future crypto may substitute even a small part of stocks or bonds in institutional portfolios because crypto does not provide cash flows and in a purely economic sense is more like a commodity. Commodity funds are much smaller and, even more importantly, will probably allocate assets to crypto from gold, which is accounted for in the first assumption.
The third assumption seems particularly intriguing. It’s hard to find an asset as resistant to seizure as crypto (physical gold is the only example, but it’s much more difficult and expensive to keep). I think that ARK Invest may even be too conservative, estimating a total addressable market for a seizure-resistant market as only high-net-worth individuals, because Western sanctions against rogue regimes make crypto appealing for whole countries. On the other hand, the penetration rate is probably overstated, since individuals with the largest capitals (like the top 20 in the US) are unlikely to allocate to crypto anything close to 1% of their net worth.
Among other assumptions, I like the argument about emerging market currencies (although specific figures are subject to discussion). Just look at the 10-year chart of the emerging market currencies index. Diversifying out of this asset seems a no-brainer. Crypto is generally more convenient for emerging market residents than a hard currency because the hard currency should be kept in a physical form during crisis times since local banks are not safe.
J.P. Morgan Emerging Market Currency Index
All in all, my rough estimate is that a $50-200k Bitcoin price in 2030 can be derived from ARK’s view based on more or less adequate assumptions. $50k corresponds to a niche seizure-resistant asset with some characteristics of digital gold. $200k means a widely used asset strongly competing with gold. Of course, all targets hold as long as the overall framework of increased penetration in addressable markets remains correct.
Smart Contracts Fantasy
ARK’s view on smart contracts seems less reasonable to me. At the first glance, the slides explain the huge growth potential of tokenized assets managed by smart contracts. “Smart contracts could facilitate the origination, ownership, and management of tokenized assets for a fraction of the cost of traditional financial services. If financial assets were to migrate to blockchain infrastructure at a rate similar to the adoption of the early internet, and decentralized financial services charged a third of traditional financial services take rates, smart contracts could generate $450 billion in annual fees and create $5.3 trillion in market value by 2030.” – ARK says in the research report.
ARK’s Forecast of Tokenized Assets vs. All Financial Assets
ARK’s Forecast of Fees Generated by Smart Contracts
It’s a nice presentation slide, but take a look at the real world. The combined revenue of Visa and Mastercard was just $52 billion in 2022. The world’s largest exchanges typically are much smaller than Visa or Mastercard. CME Group's revenue in 2022 was $5 billion, and Nasdaq’s was $4 billion. I guess that ARK Invest mistakenly uses major banks’ revenue, which includes net interest income from loans and securities held at their huge balance sheets, as a proxy for the cost of traditional financial services.
If anything, I think that the current fee of smart contracts ($11 billion) is already too inflated since it’s about half of Mastercard's revenue and is larger than the combined revenue of CME Group and Nasdaq.
ARK’s forecast is way too optimistic and contains many mistakes, but I consider that it’s still very interesting and thought-provoking. It’s one of the very few research reports attempting to analyze crypto adoption prospects. In the short term crypto often trades like a global liquidity proxy and is highly correlated with real rates and high-risk technology stocks. But arguably in the long-term adoption prospects are much more important for crypto prices than macro factors or performance of most other prospective technologies.
My rough estimate is that a $50-200k Bitcoin price in 2030 can be derived from ARK’s view based on more or less adequate assumptions. $50k corresponds to a niche seizure-resistant asset with some characteristics of digital gold. $200k means a widely used asset strongly competing with gold. Of course, all targets hold as long as the overall framework of increased penetration in addressable markets remains in place.
Ironically, ARK’s positive view on smart contracts makes me wary of them. Their current fees seem too high (of course only if the ARK’s fee estimate is correct).
*This communication is intended as strictly informational, and nothing herein constitutes an offer or a recommendation to buy, sell, or retain any specific product, security or investment, or to utilise or refrain from utilising any particular service. The use of the products and services referred to herein may be subject to certain limitations in specific jurisdictions. This communication does not constitute and shall under no circumstances be deemed to constitute investment advice. This communication is not intended to constitute a public offering of securities within the meaning of any applicable legislation.