Bitcoin (BTC -3.44%) has risen in price in recent months. After having a strong 2023 in which its value increased by 154%, the digital currency extended these gains into the start of 2024. On Monday it hit a new 52-week high of over $47,000.
Although Bitcoin has performed well recently, its valuation can still rise, and crypto stocks could follow suit. Here are two reasons why it could be a spectacular year for Bitcoin and crypto stocks in general.
A spot Bitcoin exchange-traded fund could attract more investors to crypto
Approval of a spot Bitcoin exchange-traded fund (ETF) could come as early as this week.
This is important because while people have been able to invest in cryptocurrencies through digital wallets and other funds that use derivatives, a spot Bitcoin ETF would actually hold Bitcoin. This means it gives investors an investment tool that more accurately reflects the true price of Bitcoin. It would be the next best thing to actually buying the cryptocurrency itself. There would be no need to rely on derivative Bitcoin ETFs or have a digital wallet.
Making it easier to invest in Bitcoin could attract a wider range of investors. It is similar to the way a stock can reach more investors by being traded on a major exchange like the NYSE instead of only being available on an over-the-counter (OTC) exchange. Of course, you can buy OTC stocks, but some people disagree with this and larger investors may avoid them for political reasons.
The approval of a spot Bitcoin ETF could give the cryptocurrency some credibility and make it easier for people to invest in it. And more people investing money in Bitcoin could be a catalyst for the price to rise.
A Bitcoin halving is also expected to occur this year
Another upcoming catalyst for Bitcoin in 2024 is the next halving. These take place approximately every four years, the last one taking place in 2020. During a halving, the rewards miners receive for validating transactions on the blockchain (rewards distributed in newly mined Bitcoins) are halved. This limits the growth rate of Bitcoin supply.
In 2012, 2016, and 2020, Bitcoin's price rose after halving events, and the same could happen this year too. Halving is an important feature of Bitcoin because it ensures sufficient scarcity. The maximum number of Bitcoin tokens that can ever exist is 21 million, and more than 19 million have already been mined so far.
While the ultimate supply cap remains the same, a halving event helps remind and remind investors of this built-in scarcity. This may encourage more investors to buy Bitcoin, especially for new investors who want to buy cryptocurrencies and may otherwise consider other digital currencies that are not as scarce.
Why crypto stocks can benefit
There is an undeniable connection between the prices of crypto stocks and the price of Bitcoin. If the value of Bitcoin rises, crypto stocks can also benefit. While a halving event has a negative impact on miners as it gives them fewer tokens for crypto mining, larger mining companies can benefit as the lower rewards could push out competitors who cannot afford it further with a lower return to mine. And the impact of the halving on rewards in terms of token volume could also be offset by a higher price for Bitcoin.
In addition to mining stocks, there are also other crypto stocks that can perform well, such as Coinbase Global, which operates a leading cryptocurrency exchange platform. It has performed significantly better than Bitcoin since the beginning of last year, although after a larger decline in late 2021 and 2022.
Bitcoin price data from YCharts.
While the halving could be a mixed blessing for miners, the approval of a spot Bitcoin ETF is likely to lead to price gains for both crypto stocks and digital currencies overall this year.
Is now the time to invest in Bitcoin and crypto stocks?
There is a lot of excitement surrounding crypto at the moment, but investors should keep in mind that there is always a lot of risk involved. Bitcoin is a speculative asset, and while it could have a great year like crypto stocks, there could also be significant volatility in this type of investment.
If you're willing to take that risk, there's definitely still time to invest in cryptocurrencies. However, if you are risk-averse, even the approval of a spot Bitcoin ETF may not be enough to make the cryptocurrency a safe enough investment for your portfolio.
While there is still a lot of upside potential in cryptocurrencies, there are also plenty of risks. Before you decide to invest, you should consider whether you are comfortable with the risk and the possibility of incurring significant losses.
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