Citi predicted bitcoin's rise to $135k Why is the bank betting on the network effect?

Bitcoin will rise in price by more than 15% to $135,000 by the end of the year, Citi's baseline forecast suggests. The bank's analysts' calculations are based on a model based on user activity: the more investors buy bitcoin or related assets, the more it costs;

Citigroup analysts Alex Saunders and Nathaniel Rupert published their model of cryptocurrency valuation taking into account the changing dynamics of the digital market and presented their forecasts, writes CoinDesk. According to the basic one, by the end of the year the price of bitcoin will grow to $135 thousand. The optimistic scenario of analysts suggests that bitcoin may rise to $199 thousand. However, under less favorable conditions, for example, against the background of weakness in the stock market, its price may collapse to $64 thousand, writes ConiDesk with reference to the calculations of Citi.

On Friday, July 25, the value of bitcoin fluctuated from $114.8 thousand to $118.4 thousand. Over the day, it lost 2.3% of its value.

The bank's analysts base their forecast on three key factors: the growth of the user base, macroeconomic conditions and the inflow of funds into spot exchange-traded funds (ETFs). The forecast is based on a model that relies on user activity: analysts calculated the dynamics of growth in the number of bitcoin wallets in the blockchain, excluding transactions within exchanges.

Citi expects the number of investors buying bitcoin or shares in bitcoin funds to grow by 20% by the end of the year. This will trigger the linear network effect, which is an effect in economics where the value of a product increases with the number of users of that product;

Based on this alone, according to Citi's model, bitcoin should cost about $75k. Citi deducts about $3200 from the target price because of constraining macroeconomic factors - such as weak performance of equities and gold. But the expected $15 billion in additional capital inflows into the ETF adds another $63,000 to the formula. As a result, Citi's baseline estimate is $135,000 per bitcoin by the end of the year;

After the approval of U.S. spot ETFs in January 2024, the inflow of funds into these instruments has become a determining factor in the price dynamics of bitcoin, the investment bank notes. According to Citi, inflows and outflows into ETFs already explain more than 40% of recent fluctuations in the token's exchange rate, and the bank's updated model assigns them key importance.

The growing integration of cryptocurrencies into the traditional financial system through ETFs, the inclusion of bitcoin-dependent companies like Strategy and Coinbase in equity indices, and increased regulatory certainty are increasing the impact of macroeconomic and institutional flows on the token, the report said.

"Cryptoassets have grown and now represent a more meaningful portion of capital. The market capitalization of cryptocurrencies is comparable to the largest companies in the stock market," the Financial Times quotes Saunders and Rupert. - Cryptocurrency-related assets have become a meaningful part of some of the largest financial indices. Cryptocurrency-related stocks are now part of the S&P 500, Nasdaq and Russell. This means that even investors who have no interest in crypto now have to factor it into their portfolio management."

Citi analysts add that the risks in their model are skewed to the upside. Demand for ETFs is increasing faster than expected, and user activity is showing a smaller-than-expected decline, indicating that network effects may be longer-lasting.

Thus, bitcoin's trajectory now depends not only on technological diffusion, but also on capital allocation strategies and investor behavior, according to the bank.

This article was AI-translated and verified by a human editor