Analysts at banking giant Citi are laying out price targets on Bitcoin (BTC) based on a surprisingly simple forecast model.
In a new report seen by the Financial Times, Citigroup analysts Alex Saunders and Nathaniel Rupert offer a new way of valuing digital assets, ostensibly suggesting that the price of Bitcoin is influenced simply by how many people want to own it.
While Citi’s previous Bitcoin price models incorporated various data inputs like mining electricity costs, adoption rates and more, the analysts have updated their forecast to account for the reality that crypto assets are very much a part of the traditional macroeconomic picture, rather than an isolated subset without relevance to the average investor’s portfolio.
“Around the fall of FTX, the majority of client questions were, ‘How does crypto effect MY market or the macroeconomy?’ – the answer then was, probably not much.
We think that is changing. Firstly, crypto assets have grown and now represent a more meaningful amount of capital. Crypto market-caps now rival all but the largest-cap equity names. Secondly, crypto-related assets are now meaningful parts of some of the largest financial indices. Crypto-related securities are now members of the S&P 500, Nasdaq, and Russell. Importantly, this means even crypto-agnostic clients need to have a view to manage their portfolios.”
Citi now has a “bull case” price target of $199,340 for BTC at the end of this year, a “base case” for $135,133, and a “bear” case for $63,675.
As of late, the analysts say that the price of BTC is primarily driven by one factor.
The Citi analysts say that the net weekly flows into Bitcoin-based exchange-traded funds (ETFs) have had a “very strong contemporaneous relationship” with the returns on BTC.
“Since launch, 41% of Bitcoin return variation can be explained by flows alone (the relationship is just as strong even accounting for equity returns). So far this year, we have seen just over $19 billion of flows, including $5.5 billion month-to-date. We expect flows to continue for the rest of the year as more institutions approve and potentially advise underlying clients on these vehicles.
There is significant uncertainty around these flows; we forecast $15 billion given the pace seen so far year-to-date. This would slightly exceed last year’s launch, but the recent acceleration in flows presents upside risk – given each $1 billion of weekly flows is associated with a 3.6% return increase, flows have a meaningful impact on our forecast.”
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