Apollo Crypto, a renowned name in cryptocurrency analysis, recently released an extensive report predicting a significant increase in the Bitcoin price, which could potentially reach $200,000 in the current cycle. Written by Henrik Andersson, the report delves into several factors that may contribute to this remarkable growth.
A crucial aspect of the report is the expected approval of the first Bitcoin Exchange-Traded Fund (ETF) in the United States. Eric Balchunas, the senior Bloomberg ETF analyst, says: “There is a 90% chance of approval by January 10, 2024.” This development is seen as an important driver for Bitcoin’s price increase.
The report elaborates on leading asset managers’ interest in Bitcoin spot ETFs, stating: “In our view, it is likely that the SEC will not grant preferential treatment to any single ETF issuer; therefore, several of them are likely to receive approval at the same time.”
Bitcoin ETF inflow estimation and multiplier effect
A key element in Apollo Crypto’s analysis is the potential inflow of new money into Bitcoin ETFs. The report estimates this by considering the total size of US stock ownership at $64.7 trillion.
It is assumed that 10% of these investors would allocate 1% to Bitcoin ETFs, leading to an estimated inflow of $65 billion. This number is compared to the total US ETF market size of $6.5 trillion, with Bitcoin ETFs expected to capture 1%, matching the inflow estimate of $65 billion.
The concept of the ‘Bitcoin multiplier’ is also central to the report’s analysis. This refers to the effect of any dollar inflow on Bitcoin’s market capitalization. The report mentions the next BTC halving in April 2024, which will reduce the new supply of BTC, as a factor that could increase the multiplier effect.
Referring to a Bank of America report titled “Bitcoin’s Dirty Little Secrets,” Apollo Crypto notes, “For example, we estimate that net inflows of just $93 million would result in a 1% price increase.” From this they derive a multiplier effect of 114x as an upper bound, but apply a more conservative estimate of 50x for their scenario.
Combining the inflow estimate and the multiplier effect, the report concludes that Bitcoin could reach $200,000 per coin in this cycle:
All told, it leads us to believe we could see $65 billion inflows into Bitcoin ETFs in the next cycle. Applying a 50x multiplier effect leads to an increased market cap of $3.25 trillion, in which case we would see Bitcoin trading at $200,000 per coin. We realize that this is a bold estimate with a lot of uncertainty.
Flow-On Effect on Ethereum
The report doesn’t stop at Bitcoin. It also analyzes the performance relationship between Bitcoin and Ethereum during the last bull market, using a specific period from September 2020 to November 2021.
During this phase, the report notes: “Bitcoin rose 4.8x, while Ethereum rose 9.8x; Ethereum has risen twice as much as Bitcoin during this period.” This historical data is crucial because it indicates that Ethereum tends to have a higher beta, or sensitivity, to Bitcoin’s market movements.
Building on this relationship, the report predicts that if the price of Bitcoin were to increase fivefold – as suggested in their prediction from $40,000 to $200,000 – Ethereum could, based on past market behavior, experience a parallel and more pronounced rise.
The report estimates: “If the relationship holds over the next cycle and Bitcoin increases fivefold, Ethereum would reach $22,000.”
At the time of writing, BTC was trading at $43,371.
Featured image from Shutterstock, chart from TradingView.com