After a quick start to the year Bitcoin (BTC -0.36%) has been on hold lately and failed to decisively break through the $30,000 mark. While Bitcoin is still up 79% this year, it’s actually down 2% over the past 30 days.
But despite this recent lull, bitcoin is the only cryptocurrency I would buy right now. There’s a lot going on behind the scenes with Bitcoin, and I like what I’m seeing. Here are three factors that I believe make Bitcoin an attractive buy right now.
New inflow of institutional funds
One of the biggest catalysts for Bitcoin is the potential massive influx of new funds from institutional investors. For example in mid-June BlackRock Inc. (BLK 0.71%), the world’s largest money manager, announced plans for a new spot bitcoin ETF. This was followed by similar spot bitcoin ETF applications from other investment firms, including Ark Invest and Fidelity Investments. The real issue now is when, not if, such a spot bitcoin ETF will be approved by the SEC, and then the new influx of institutional funds could begin.
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According to Ark Invest’s current bitcoin valuation model, the long-term trend is for institutional investors to allocate more and more of their portfolios to bitcoin. Ark Invest says that a simple shift in the asset allocation mix for Bitcoin from 1% to 2.5% could have a dramatic impact on the future price of the cryptocurrency. In Ark Invest’s bull case scenario, the percentage allocated to Bitcoin could be as high as 6.5%.
Lower volatility
The conventional wisdom about bitcoin is that it is one of the most volatile assets in the financial world. While this may have been the case in the past, Bitcoin is actually becoming less, not more, volatile over time. Currently, Bitcoin’s volatility is nearing a multi-year low and some traders are even complaining that Bitcoin is not volatile enough.
While lower volatility for Bitcoin might limit some of its future upside potential, it also makes it relatively less risky. After all, volatility is actually just a measure of how much an asset’s price can fluctuate over a period of time, and lower volatility means that daily fluctuations in Bitcoin’s price could become smaller over time. This is fantastic news if you’re thinking about holding bitcoin for the long term, but bad news for anyone considering bitcoin as a short-term speculative asset.
Bitcoin halving
Finally, there is one more catalyst for Bitcoin that will receive a lot more attention in the final months of the year and that is the upcoming Bitcoin halving. Currently, the Bitcoin halving is scheduled for April 2024 and it is one of the most anticipated events in the crypto world. During a halving event, the mining reward for mining a new block on the blockchain drops by half.
This might sound like a purely technical issue, but three previous Bitcoin halvings in 2012, 2016, and 2020 have resulted in sharp price increases. The general consensus is that a halving event increases Bitcoin’s relative scarcity while also making it more deflationary over time. Both are very positive signs for investors, which is why past bitcoin halving events have been so overwhelmingly optimistic.
The big caveat here, of course, is that past performance is no guarantee of future performance. We don’t really know what will happen this time, but some investors are now predicting that Bitcoin will surpass $100,000 next year. For example, Standard Chartered Bank now has a revised price target of $120,000 for Bitcoin, and many of these implied price gains are due to the anticipated impact of the halving.
A new risk-reward profile
The three factors outlined above suggest that Bitcoin’s overall risk-reward profile may be changing. There’s still plenty of upside, but some of the risk historically associated with Bitcoin may go away. As more institutional money flows into bitcoin, I expect this trend to continue. Simply put, there will be less short-term, speculative money chasing bitcoin and more long-term, “buy-and-hold” money investing in bitcoin. So I’m bullish on bitcoin in the long run. It’s the only cryptocurrency I would buy right now.
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