In the second quarter, the hedge fund billionaires listed below added to their positions in the iShares Bitcoin Trust (IBIT 1.23%), an exchange-traded fund (ETF) issued by BlackRock designed to track the spot price of Bitcoin (BTC -0.41%).

• Israel Englander of Millennium Management added 3.8 million shares of the iShares Bitcoin Trust, increasing his stake 22%. The BlackRock ETF ranks among his top-15 holdings.
• Steven Schonfeld of Schonfeld Strategic Advisors added 247,500 shares of the iShares Bitcoin Trust, increasing his stake 5%. The BlackRock ETF is now his third-largest holding.
• Tom Steyer at Farallon Capital Management added 1.2 million shares of the iShares Bitcoin Trust, increasing his stake 21%. The BlackRock ETF ranks among his top-20 holdings.

The hedge fund managers above are good role models due to their impressive track records. Englander and Schonfeld beat the S&P 500 (^GSPC 0.51%) in the last three years. Also, Englander and Steyer rank among the top-10 hedge fund managers in history as measured by net gains since inception.

Here’s what investors should know about the iShares Bitcoin Trust.

Image source: Getty Images.

Some Wall Street experts anticipate monster gains for Bitcoin holders

Bitcoin has advanced 88% in the past year to $111,000, crushing the 16% return in the S&P 500. Nevertheless, the Wall Street experts below expect Bitcoin to keep driving higher in the years ahead.

• Geoffrey Kendrick at Standard Chartered expects Bitcoin to reach $500,000 by 2029. That implies 350% upside from its current price.
• David Puell at Ark Invest says Bitcoin will hit $710,000 by 2030. That implies 540% upside from its current price.
• Gautam Chhugani at AllianceBernstein expects Bitcoin to reach $1 million by 2033. That implies 800% upside from its current price.
• Tom Lee of Fundstrat Global Advisors says Bitcoin can reach at least $3 million in the long run. That implies 2,600% upside from its current price.
• Michael Saylor, executive chairman at Strategy, says Bitcoin will be a $200 trillion asset by 2045. That implies 8,990% upside from its current market value of $2.2 trillion.

Investors should never anchor to price targets, especially when those price targets promise extraordinary gains. Nevertheless, I think patient investors comfortable with volatility should have exposure to Bitcoin, ideally through a spot Bitcoin ETF like the iShares Bitcoin Trust. Here’s why.

Institutional and corporate adoption of Bitcoin is driving demand

Asset prices are driven by supply and demand, but Bitcoin is somewhat atypical in that its supply is limited to 21 million coins, which means demand is the most consequential variable. And there are two big reasons to believe demand for Bitcoin will increase in the future.

1. Institutional adoption of Bitcoin is on the rise

Institutional investors, a group that controls about $130 trillion in assets, have long avoided cryptocurrency due to regulatory uncertainty. But that is changing due to the approval of spot Bitcoin ETFs last year and the pro-cryptocurrency stance of the Trump administration.

I’ve already mentioned three hedge fund managers who recently added to their stakes in the iShares Bitcoin Trust, but the number of large asset managers (i.e., those with $100+ million in securities) that own positions in the fund rose 150% during the last year, and the number of shares owned by those asset managers increased 200%.

2. Corporate adoption of Bitcoin is on the rise

Strategy (formerly MicroStrategy) has become a Bitcoin investment vehicle. The company owns 636,505 Bitcoin, 3% of the total supply, and it has added to its position at least once per quarter for five straight years. During that period, Strategy has seen its market capitalization increase 6,500%.

Inspired by that success, several other companies now use Bitcoin as a corporate treasury asset, including Block, Mara, Semler Scientific, Tesla, and Trump Media & Technology Group. In total, the number of Bitcoin owned by public and private companies rose 95% over the past year, according to BitcoinTreasuries.net.

Why choose a spot Bitcoin ETF over the cryptocurrency

Owning Bitcoin is often more complicated and expensive than owning a spot Bitcoin ETF. For instance, investors that want to own Bitcoin must first create and fund an account with a cryptocurrency exchange. Admittedly, some brokerages offer crypto trading — Robinhood is one example — but most brokerages do not, which means managing multiple portfolios.

Also, Coinbase, the largest U.S. cryptocurrency exchange, charges between 0.4% and 0.6% per transaction under $10,000. That means investors pay relatively high fees two times, once when they buy and again when they sell. But the iShares Bitcoin Trust has an annual expense ratio of 0.25%, meaning shareholders will pay just $25 per year on every $10,000 invested in the fund.

As a caveat, investors should bear in mind cryptocurrencies tend to be volatile, and Bitcoin is no exception. Its price has declined more than 50% from a record high twice in the last five years, and it lost more than 75% of its value during one of those drawdowns. Similar volatility is possible (if not probable) in the future.