Bitcoin (BTC -1.22%), which recently broke the $37,000 price mark, has been on a wild ride over the past two years. After plunging 65% last year, it is up 122% this year, outperforming all but a handful of top cryptocurrencies. As a result, analysts and traders are rushing to formulate extremely optimistic price targets for Bitcoin in 2024.
But if you look a little deeper, there are many reasons why a decline could happen sooner than anyone thinks. It is easy to argue that severe overheating is occurring and a market correction is now imminent, especially if the economy is showing signs of weakness. But don’t worry too much about the decline. Two key factors make cryptocurrency a fantastic long-term investment.
Institutional investor inflows
The biggest factor supporting a higher price for Bitcoin is the potential for a huge flow of money from institutional investors into new spot Bitcoin exchange-traded funds (ETFs), which are likely to be initially approved by the Securities and Exchange Commission (SEC). will be quarter 2024.
These new spot ETFs offer institutional investors the opportunity to gain exposure to the digital currency without directly owning it. If institutional investors decide to invest even 1% of their portfolio in cryptocurrencies, it could have a huge impact on the price of Bitcoin for the foreseeable future.
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As a result, some analysts are predicting that Bitcoin will break its all-time high of $69,000 and continue its rise to $100,000 and beyond, fueled by this new infusion of money from institutional investors. However, remember JPMorgan Chase (NYSE:JPM) recently warned that this impact may be smaller than previously thought, as institutional investors could simply move their money from other existing Bitcoin investment products into these new ETFs.
The halving
The other key factor supporting a higher price for Bitcoin is the halving, now scheduled for April 2024. This event, which only occurs once every four years, results in the reward paid to Bitcoin miners being cut in half.
This event creates a “scarcity effect” that drives up the price of the cryptocurrency over time. It also has a deflationary effect as the speed of creation of new Bitcoins decreases, making it more attractive as a hedge against inflation. There have been three halvings so far, and all of them resulted in Bitcoin reaching new highs.
The impact of the Bitcoin halving appears to be fading over time. And of course, past performance is no guarantee of future performance. Just because the halving has resulted in three previous bullish market cycles, there is no inherent reason why it needs to happen a fourth time.
However, there is no denying that the halving is a cornerstone of almost every Bitcoin price prediction for 2024. Standard Chartered Bank, for example, raised its previous price target from $100,000 to $120,000, based in part on new uptrends surrounding the halving.
Do you believe in efficient markets?
The big question is how much these two events – the arrival of the first spot Bitcoin ETF and the halving – are already priced into the hefty price of $37,000. According to the efficient market hypothesis, which states that asset prices reflect all available information, this should be the case.
Bitcoin is a digital asset, but it is still an asset. Since we know the halving date and the approximate spot ETF approval date, these events should be reflected in the current price.
Therefore, JPMorgan Chase argues that much of the impact of the spot Bitcoin ETF is likely already priced in. Coinbase Global (NASDAQ:COIN)He also seems to be of this opinion. And there are many investors who believe that Bitcoin is facing a price recalibration as the market makes sense of all available information.
In fact, Bitcoin bear Peter Schiff is now arguing that the impending approval of the first spot Bitcoin ETF product could be a perfect opportunity to buy the rumor and sell the news.
That’s why you need to be prepared for the next big Bitcoin drop. If you don’t prepare now, you might be surprised when it happens later. I am long-term bullish on the cryptocurrency and, based on the two catalysts described above, I believe that any decline presents a unique opportunity to buy Bitcoin at a bargain price before it continues its steep rise.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global and JPMorgan Chase. The Motley Fool has a disclosure policy.
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