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2 reasons to buy Bitcoin like there’s no tomorrow
In the last two months, Bitcoin (CRYPTO: BTC) has lived up to its reputation as one of the most volatile assets in the world. After hitting a new all-time high of $73,750 in mid-March, Bitcoin it quickly fell below $57,000 by the end of April.
For now, Bitcoin has recovered well to the $62,000 level. But questions still remain about where Bitcoin is headed in 2024. Is Bitcoin overvalued or undervalued at its current price? To answer this question, let’s take a closer look at two key catalysts.
Bitcoin ETF Inflows
Everything starts from the new spot Bitcoin Exchange Traded Funds (ETFs). In the first four months of 2024, massive investor inflows into these ETFs led to a huge rally in the price of Bitcoin. The new Bitcoin spot ETFs, led by iShares Bitcoin Trust (NASDAQ:IBIT) and the Fidelity Wise Origin Bitcoin Fund – quickly amassed more than $30 billion in assets under management. They have found wide acceptance among investors. At one point, the iShares Bitcoin Trust recorded a 71-day streak of positive net inflows.
Image source: Getty Images.
It’s true that there has been a notable drop in the amount of new money going into these ETFs over the past month as the price of Bitcoin has fallen. But we are now preparing for what can be considered the “second round” for these ETFs. Second Black rock, the issuer of the iShares Bitcoin Trust, the next round of ETF buyers will include three major types of institutional investors: sovereign wealth funds, pension funds and endowment funds. Overall, this will represent another huge influx of new money into Bitcoin, helping to support its price for the foreseeable future.
The halving
The second main reason to buy Bitcoin now is the halving. This event, which took place on April 19, resulted in rewards paid to Bitcoin miners being reduced by half. On the surface, this may not seem like a big deal. But this process triggers a chain reaction of events that (a) increases Bitcoin’s scarcity and (b) solidifies its status as a disinflationary asset.
Both of these results are very important for investors. Increasing the perceived scarcity of any asset should increase its price, and that’s no different with Bitcoin. Additionally, investors are always clamoring for inflation-resistant assets. When you combine both of these features into one asset, you should get a fantastic long-term store of value.
Because of this, halving events have historically been very bullish for Bitcoin. After the previous halving (which occurred in May 2020), for example, the price of Bitcoin became parabolic. On May 11, 2020, the price of Bitcoin was $8,600. By the end of the year, Bitcoin was trading around $30,000 per coin. The price of Bitcoin will eventually reach a new all-time high of $69,000 in 2021. Given that similar patterns have occurred since halving events in 2012 and 2016, it is easy to see why cryptocurrency investors expect repeat performance.
The story continues
The only problem is that this year’s halving was a bit of a stalemate. When it took place in mid-April, Bitcoin was trading at around $64,000. More than two weeks later, it is still trading around the $64,000 level. Furthermore, there was a worrying drop towards $57,000 along the way. This was completely unexpected: the Bitcoin halving should lead to a higher price, not a lower price!
Don’t believe the hype?
And this brings me to an important warning for stock investors who are new to the world of cryptocurrencies. Bitcoin can be a riskier investment than buying a single stock, mainly due to its volatility. There were plenty of reminders of this in 2024, with Bitcoin rising or falling 10% in a single day. And keep in mind that some of the world’s smartest investors, including billionaire Warren Buffett, say they have no intention of buying Bitcoin.
That said, it’s hard not to see the new Bitcoin spot ETFs as a real game changer. They are democratizing cryptocurrencies for small retail investors, while also making Bitcoin mainstream enough for even the largest institutional investors. As long as investors of all sizes continue to put their money into these ETFs, I will be buying Bitcoin like there is no tomorrow.
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Domenico Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.
2 reasons to buy Bitcoin like there’s no tomorrow was originally published by The Motley Fool