Bitcoin
Should you buy Bitcoin right away?
Bitcoin’s recent pullback from its all-time high could represent a unique buying opportunity.
Bitcoin (Bitcoin -1.80%) may have increased by more than 50% for the year, but the last three months have been disappointing, to say the least. Bitcoin is now trading more than 10% below its all-time high of $73,797, which was reached in mid-March. And on June 18, the price of Bitcoin fell below $65,000 for the first time in over a month.
But do not worry. We’ve seen this story before with Bitcoin, and experienced crypto investors know that short-term dips in Bitcoin’s price can often present unique long-term buying opportunities. So here are two good reasons to stop worrying and buy the dip.
The new Bitcoin ETFs in sight
At some point this starts to sound like a broken record, but the reality is this: huge flows of investors into the new spot Bitcoin ETFs will likely increase the price of Bitcoin. While there was some cooling in investor flows into ETFs in May, the pace of capital committed to cryptocurrency appears to be picking up again. At one point in early June, new Bitcoin ETFs had a 19-day streak of net investor inflows. To date, more than $30 billion has been funneled into the new ETFs.
Image source: Getty Images.
This leads to the inevitable question: why isn’t the price of Bitcoin rising if we’re seeing all these ETF inflows? One answer could be that the main buyers of the new ETFs are not retail investors (people like you and me) or large institutional investors. Instead, the main buyers appear to be Wall Street hedge funds. In fact, 80 of the biggest buyers of ETFs so far are hedge funds. And this is simply not the kind of patient, buy and hold money that will cause the price of Bitcoin to rise in the long term.
The good news here is that retail investors appear to be increasing their Bitcoin allocations. And over time, we can expect more institutional investors to start buying cryptocurrencies as well. Black stone (BLACK 0.16%), which has $10 trillion in assets under management, says there are three distinct types of institutional investors who could join the Bitcoin party soon: pension funds, endowments, and sovereign wealth funds. Once this pool of money enters the crypto market, it will likely boost Bitcoin.
The halving
And don’t give up the half fortunately. While Bitcoin’s performance since the halving has been dismal, the reality is that any halving event does not magically lead to stratospheric increases in the price of Bitcoin. Halving cuts the rate of creation of new Bitcoins in half, and this is what sets off a chain reaction of events that can lead to higher Bitcoin prices. In many ways, it is similar to the way monetary policy It works, in that rate cuts or other measures can take time to impact the broader economy.
In short, the financial impacts could take some time to develop and it could be several months before we see the price of Bitcoin really soar. Billionaire venture capitalist Chamath Palihapitiya recently analyzed Bitcoin’s performance during the previous halving cycle (which began in May 2020) and found that Bitcoin’s performance didn’t really start to take off until several months after the halving cycle began. At that point, Bitcoin’s chart turned parabolic and the cryptocurrency reached a new all-time high of $69,000 for that cycle.
Will Bitcoin hit $100,000 this year?
In this context, there are many analysts and investors who still think that Bitcoin could reach US$100,000 or more by the end of this year. According to Standard Chartered, the rise of pro-Bitcoin rhetoric in the election campaign is another factor that could take Bitcoin to $100,000. In an ultra-bullish scenario, Bitcoin could reach $150,000.
If $150,000 is the upper level for Bitcoin this year, the lower level could be $42,000. In March, JPMorgan Chase predicted that Bitcoin would lose 33% of its value after the halving. This bearish scenario focused on the chaotic impact the halving could have on the Bitcoin mining industry.
Overall, I’m not worried about $65,000 Bitcoin. The only time I will be worried is if Bitcoin falls below the $42,000 price level. Fortunately, this seems unlikely given Bitcoin ETF investor flows and growing mainstream adoption. So, if you are risk-averse and optimistic about Bitcoin’s long-term prospects, now could be the perfect time to buy the dip.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Dominic Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin and JPMorgan Chase. The motley fool has a disclosure policy.