1 Brilliant Index Fund to Buy That History Says Could Soar 1,280% by 2032

Portfolio diversification is a good way to mitigate risk. One way investors can diversify their portfolios is with Bitcoin (CRYPTO: BTC), and the spot Bitcoin exchange-traded funds (ETFs) that debuted early in 2024 made that even easier. Those funds let investors add direct exposure to Bitcoin to their existing brokerage accounts while avoiding the high fees and other hassles associated with cryptocurrency exchanges.

There are several good options, but the iShares Bitcoin Trust (NASDAQ: IBIT) stands out because it is operated by BlackRock, the largest asset manager in the world. It reached $10 billion in assets under management more quickly than any other ETF in history, according to The Wall Street Journal. And its below-average expense ratio of 0.25% means the annual fee will total just $25 for every $10,000 invested in the fund.

Additionally, several hedge fund managers have bought positions in the iShares Bitcoin Trust. That institutional demand, coupled with the finite supply of Bitcoin, could drive its price much higher.

Indeed, based on historical patterns, Bitcoin could soar 1,280% by 2032, and if it does, the iShares Bitcoin Trust would deliver equivalent gains.

Bitcoin's halving events have consistently correlated with price appreciation

The total supply of Bitcoin that can ever be mined is limited to 21 million coins, and the rate at which new coins come into circulation is governed by an internal protocol that includes periodic halving events. To elaborate, crypto miners earn block subsidies (newly minted Bitcoin) for validating transactions and adding them to the blockchain. Those block subsidies are reduced by 50% each time 210,000 transaction blocks are completed, which happens roughly once every four years.

Since its inception in 2009, Bitcoin has undergone four halving events, meaning the rate at which new supply is created has diminished over time. Importantly, Bitcoin has consistently become more valuable from one halving event to the next, as shown in the chart below.

Data source: Morgan Stanley, YCharts.

Bitcoin's price appreciation between halving events can be attributed to two things. First, selling pressure from miners diminishes with each subsequent event, simply because miners earn 50% less Bitcoin at each interval, so they have less cryptocurrency available to sell.

Second, Bitcoin has become more accessible over the years. Investors are no longer limited to cryptocurrency exchanges. Instead, they can buy Bitcoin through fintech platforms operated by Block, PayPal, and Robinhood. And the arrival of spot Bitcoin ETFs created an even easier means of adoption.

To summarize, Bitcoin effectively becomes more scarce with each halving because new supply gets created more slowly. Meanwhile, greater accessibility has led to greater demand. Under those circumstances, the stock-to-flow (S2F) model explains the corresponding price appreciation.

To elaborate, S2F models compare the current supply of an asset (stock) to the new supply created each year (flow). Higher ratios correlate with greater scarcity and higher prices. Bitcoin's S2F value has increased with each halving event, so price appreciation is the logical outcome.

History says Bitcoin could soar by 1,280% by the halving event in 2032

The return between halvings has diminished with each subsequent event, but the decay has not been linear. For instance, the gains in the first interval (5,525%) topped the gains in the second interval by a factor of 4.7, but the gains in the second interval (1,179%) topped the gains in the third interval by a factor of 1.9.

To make sense of the relationship, I plotted the returns and added a trend line to the data. The trend line has an R-squared value of 0.998, signaling a good fit. For context, R-squared values are numbers between 0 and 1 that measure how well a model predicts an outcome. A trend line is most reliable when its R-squared value is at or near 1.

Using historical data, I extended the trend line two halving events into the future, as shown in the chart below.

Data regarding historical returns comes from Morgan Stanley. Predicted returns are estimates made by the author.

Bitcoin was valued at $63,462 when the 2024 halving event took place. The trend line implies another 332% gain by the 2028 event, which would take its price to $269,889. The trend line also implies an additional 213% rise by the 2032 event, taking its price to $843,878.

Bitcoin currently trades at $61,000. So, the trend line implies an upside of 1,280% in little more than eight years, which equates to an annualized return of nearly 39%.

A word of caution for investors

Some analysts are forecasting that Bitcoin's price will appreciate by even more than 1,280% in the coming years. For instance, Ark Invest founder Cathie Wood says Bitcoin could be worth $3.8 million by 2030 -- a gain of more than 6,000% from its current price of $61,000. But investors should understand the risks associated with Bitcoin.

First, past results never guarantee future performance. Bitcoin may never reach the prices discussed in this article. Second, Bitcoin has historically been very volatile. The cryptocurrency has declined by more than 50% on several occasions and similar plunges are probable in the future.

Investors who are comfortable with that should consider diversifying their portfolios by purchasing a position in the iShares Bitcoin Trust.

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Trevor Jennewine has positions in Block and PayPal. The Motley Fool has positions in and recommends Bitcoin, Block, and PayPal. The Motley Fool recommends the following options: short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.