On January 10, the U.S. Securities and Exchange Commission (SEC) greenlit the first batch of 11 Bitcoin ($BTC) exchange-traded funds (ETFs). Unlike their predecessors, these new ETFs directly hold actual Bitcoins, closely tracking the cryptocurrency’s spot price. This offers investors a more accessible way to engage with Bitcoin compared to standalone crypto wallets.
Despite the SEC’s nod signaling confidence in Bitcoin’s mainstream potential, the cryptocurrency saw a price dip shortly after the ETFs began trading on January 11, currently resting around $42,500 as of January 13, marking a nearly 10% decline in just five days. Let’s explore the reasons behind this price drop and potential trajectories over the coming year.
Why the Decline? Bitcoin’s price is notoriously volatile, reaching an all-time high of approximately $69,000 in November 2021 but plummeting to $16,000 by the close of 2022. Factors contributing to this decline included rising interest rates, high-profile token and exchange failures, and concerns about tightening crypto regulations.
However, a resurgence in 2023 saw Bitcoin surge 154% to over $42,000, fueled by slower rate hikes and renewed market interest. Investors also anticipated SEC approval of Bitcoin’s inaugural spot price ETFs.
Hence, the recent downturn merely erased gains from the beginning of 2024. Short-term traders, buoyed by ETF approvals, likely triggered a price spike, followed by profit-taking as the initial excitement waned.
Long-Term Catalysts While Bitcoin may face continued pressure post-ETF approvals, three catalysts could drive upward momentum.
Firstly, ETF approvals ease large institutional investors’ Bitcoin accumulation. Figures like Cathie Wood predict a $1.5 million Bitcoin as institutions increase their holdings. Fidelity’s ambitious forecasts suggest $100 million by 2035 and $1 billion by 2038.
Secondly, Bitcoin undergoes “halving” every four years, cutting mining rewards in half. Despite increased costs for miners like Marathon and Riot, this event typically boosts Bitcoin’s market price by limiting available supply. The next halving is expected in H1 2024.
Lastly, persistent inflation might drive investors towards Bitcoin and gold as hedges against fiat devaluation. Countries grappling with hyperinflation might emulate El Salvador, adopting Bitcoin as a national currency, reinforcing its status as a safe-haven asset.
Amidst potential double-digit drops, investors should not overlook Bitcoin’s triple-digit gains over the next decade, focusing on long-term catalysts rather than short-term fluctuations. The recent post-ETF pullback could be viewed as an opportune moment for strategic buying.
