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Do you think it's too late to buy Bitcoin? Here is the most important reason why there is still time

Despite a remarkable upward trend, there is still an untapped opportunity for investors.

Bitcoin (BTC 0.81%) has declined from its all-time high last month, but many investors may be hesitant to invest at the current price. After all, Bitcoin is up about 50% since the start of the year, even after falling from its new high. This makes some people think that they have missed the opportunity to buy Bitcoin and that the potential future return does not justify the current price.

But there is still a major catalyst that could drive the price of the cryptocurrency significantly higher in the long term. While the upcoming Bitcoin halving may have a temporary impact on prices, this factor will drive Bitcoin to sustained higher highs over a period of several years. And there's still time to get in.

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The main reason there is still time to buy Bitcoin

Despite investors' long-standing and growing interest in Bitcoin and cryptocurrencies, the asset class has not yet achieved significant levels of institutional adoption. Institutional investors account for the vast majority of investable assets worldwide. So if you see Bitcoin adoption increasing among institutional investors while the supply of Bitcoin remains limited as intended, the price of Bitcoin must rise.

The recent launch of 11 Bitcoin exchange-traded funds (ETFs) could be a factor prompting more institutional investors to buy Bitcoin. Although there have been numerous opportunities for investors to invest in Bitcoin and other cryptocurrency assets, the new Bitcoin ETFs offer shareholders direct exposure to the funds' Bitcoin holdings. At the same time, investors do not have to deal with the technical and security hurdles associated with owning Bitcoin directly.

An analogy can be drawn with the introduction of gold ETFs. Although investors could gain exposure to the precious metal by investing in companies such as gold mining companies, investing in an ETF gives the shareholder a direct share of physical gold without having to take possession of it and ensure its security. For this reason, about half of institutional investors use gold ETFs for their gold allocation, while only 17% use physical precious metals.

If the pattern continues, the use of Bitcoin ETFs could double the potential for institutional investors to invest in Bitcoin. But to get there, investors want more regulation to provide a sense of security. As regulators develop more cryptocurrency rules and investors become more comfortable dealing with cryptocurrencies, institutional investor participation is likely to increase sharply.

How big could the adoption be?

As a group, institutional investors have deployed 4% of their capital by investing in gold and gold-related assets. This is a high hurdle for Bitcoin to reach. Gold has had value, or at least the perception of value, since ancient times.

But from an investment perspective, analysts say a combination of Bitcoin and gold is a better risk-adjusted investment than either asset alone. The most commonly suggested ratio is 80% gold to 20% Bitcoin. In this case, 0.75% to 1% of the world's investable assets could flow into Bitcoin over time.

While that may not sound like much, consider that there are approximately $250 trillion in investable assets in the world, held primarily by institutions. If 1% flows into Bitcoin, that means $2.5 trillion in increased demand. Bitcoin’s current market cap is about $1.3 trillion. In other words, with low acceptance among institutional investors, there is still plenty of room for prices to rise.

Cathie Wood's Ark Invest estimates that a 1% institutional investor allocation to Bitcoin would increase the price per coin to $120,000. A 4.8% allocation would bring it to $550,000.

We are still at a very early stage of institutional implementation. But as products like the new Bitcoin ETFs make investing in the leading cryptocurrency easier, there is likely to be a rapid increase in flows into the asset class. It's not too late to buy Bitcoin. In fact, the recent decline could be a big opportunity for investors.

Adam Levy holds positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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