ARK Invest CEO Cathie Wood believes Bitcoin is set to surge, propelled by its finite supply and growing demand.
In a new video, Wood remarks that Bitcoin’s current market cap of around $1 trillion is small relative to its potential future valuation.
“If we add all of the potential demand relative to the limited supply, we come up with incredible numbers over the long term. We have just begun. One trillion dollars is nothing compared to where this ultimately will be.”
The ARK Invest CEO points out that various established companies are adding Bitcoin to their balance sheets, as evidence of increasing demand.
“I think the most surprising development recently, and we didn’t expect it when we wrote our institutional report, is that companies are now diversifying their cash with Bitcoin. We’ve seen Square do this, Tesla do it… MicroStrategy is defining its business around it now.”
Wood asserts that Bitcoin is the “first new asset class” in about half a millennium and that its low correlation to other assets makes it attractive to investors.
“…The correlation of returns to other asset classes is extremely low. In fact, according to our analysis, the highest correlation is to real estate 0.34. And so, it’s what every asset allocator seeks, you know, non-correlated assets. We do believe this is the first new asset class, truly new asset class, since the 1,600s. Since equities.”
The ARK Invest CEO advises investors seeking to minimize volatility or maximize their Sharpe ratio, a measure of the excess return obtainable from exposure to a riskier asset and the attendant volatility, should consider Bitcoin.
After conducting a Monte Carlo simulation, a model used to estimate various possible outcomes of an uncertain event, Wood discovers that institutions should allocate a significant percentage of their portfolio to BTC.
“We’ve done a study, it’s on our website ARK-invest, about institutional participation in this thing. I think we did a million Monte Carlo simulations…
If institutions use that kind of analysis where they maybe want to minimize the volatility or, on the other extreme, maximize the Sharpe ratio, they probably should put something between 2.5 and 6.5% of Bitcoin in their portfolios.”
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