Over the past five years, Bitcoin has been a major disappointment for investors. While many tech stocks have soared due to artificial intelligence, Bitcoin has lagged behind. Over the past five years, the cryptocurrency has risen by only 40%, whereas the growth of the S&P 500 index has been about 74%.
Although a couple of factors could push Bitcoin higher over the next five years, I think investors should expect greater uncertainty. Here's why.
Several Factors That Could Boost Bitcoin.
It's possible that if the U.S. enters a recession — or another economic situation that brings uncertainty — within the next five years, some investors may shift money into Bitcoin to protect their capital.
Research from Charles Schwab shows that Bitcoin's value has increased during periods of financial instability. For example, during the regional banking crisis of 2023, which led to the bankruptcy of four banks, Bitcoin's price surged sharply as investors sought refuge in this asset. Before the bank failures, Bitcoin was in a downtrend.
The total number of Bitcoins is capped at 21 million, with 20 million already in existence, and this attracts some investors who view this cryptocurrency as a good alternative to gold. Of course, there is no guarantee that Bitcoin will gain momentum again if a difficult economic situation arises, but there is already a precedent.
A second positive factor could be broader adoption of Bitcoin by institutional investors, leading to an increased share of Bitcoin in retail investors' portfolios.
Morgan Stanley's head of digital asset strategy Amy Oldenburg recently stated that Bitcoin is still in the very early stages of institutional adoption. She believes that as more financial companies transition to cryptocurrencies, the price of Bitcoin will rise. And if a major catalyst emerges in the coming years, she believes it could ultimately reach $1 million. That would be quite an impressive achievement, considering Bitcoin's current price is only about $63,500.
But Oldenburg may be right in her long-term optimism, even if she is wrong about Bitcoin's valuation. Since its inception, Bitcoin has experienced several significant price drops but has almost always recovered substantially.
And Oldenburg has personally witnessed the appeal of this instrument to investors. Morgan Stanley's Bitcoin ETF, launched just four months ago, already has assets exceeding $400 million. If this is an early sign of demand for cryptocurrency ETFs, then Bitcoin's price could rise.
Bitcoin No Longer Has This Advantage
I think one of the main factors holding back Bitcoin's growth over the next five years will be artificial intelligence company stocks. Before the rise of AI investments, investors had to put money into speculative cryptocurrencies, including Bitcoin, if they wanted potentially significant returns over short periods.
However, over the past few years, investors have been buying shares of fast-growing semiconductor companies and major AI market players and reaping the benefits of their investments. And even recent volatility in some AI company stocks has not negated the impressive growth. For example, shares of Micron Technology, a leading memory chip manufacturer, have risen by over 1,200% in the past three years.
And many AI company stocks are highly profitable, with their revenues continuing to grow. Bitcoin and other cryptocurrencies cannot compete with companies that sell real goods and services — with sales and profits — and which also show rapid growth in their stock prices.
Thus, Bitcoin's price growth over the next five years may not be that impressive as long as the AI investment boom continues.
