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Bitcoin is trading near a 2-month low. Is this a purchase?
When Bitcoin (CRYPTO:BTC) fell below $60,000 in early May, this is a two-month low. Crypto investors were understandably worried, especially given all the hype surrounding the Bitcoin halving that had taken place just two weeks earlier. The feeling wasn’t so much fear as disbelief: This isn’t supposed to happen!
As the price of Bitcoin has stabilized at the $65,000 level, some of this concern has dissipated. But Bitcoin is still 10% below its all-time high of $73,750 from mid-March. So, is this recent drop in Bitcoin price a buying opportunity or not?
The Return of Bitcoin ETF Inflows
It can be argued that the launch of the new Spot Bitcoin exchange-traded funds (ETFs) The beginning of January was the most important factor that pushed Bitcoin to new highs this year. They attracted a massive influx of new investors for almost three months. So when investor flows into these ETFs began to slow in late April and early May, it served as a wake-up call to the market about the future direction of the Bitcoin price.
This is why the sudden return of investors to spot Bitcoin ETFs in mid-May is such a positive signal. The latest numbers are now in and it looks like money is flowing into Bitcoin ETFs again. On May 15, Bitcoin ETFs reported their best daily inflow in almost two weeks. Of course, this could just be a short-term incident.
But there is good reason to believe that this is part of a longer-term dynamic, in which investors decide to allocate a larger percentage of their portfolios to Bitcoin.
The arrival of new institutional investors
Around the time investor inflows began to slow, black rockthe transmitter of iShares Bitcoin Trust, suggested that a new wave of institutional investors would soon begin allocating a percentage of their portfolios to Bitcoin ETFs. BlackRock particularly singled out pension funds, sovereign wealth funds and endowments as the most likely candidates to buy Bitcoin.
Image source: Getty Images.
At the time, this seemed like a lot of bluster, but there’s no denying that several high-profile institutional investors have recently announced large positions in new Bitcoin ETFs. The latest name is the State of Wisconsin Investment Board (SWIB), which recently announced a $100 million investment in iShares Bitcoin Trust. SWIB manages more than $156 billion in assets, including the holdings of the Wisconsin Retirement System, the State Investment Fund and other state trust funds.
This is huge news for Bitcoin, because pension funds are very different animals from hedge funds. They have a fiduciary duty to protect the value of their investments and are not going to wade into the depths of a dangerous shark-infested pool. So keep an eye out for similar types of traditionally risk-averse institutional investors putting their money into Bitcoin. Over time, regular purchases from these types of institutional investors should help drive the price of Bitcoin higher.
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The long-term outlook for Bitcoin
Better yet, Bitcoin’s long-term outlook remains intact. Despite all the economic warning signs, Wall Street investment firm Bernstein actually doubled its previous price predictions for Bitcoin. Bernstein expects a price of $100,000 for Bitcoin later this year and $150,000 by the end of 2025.
Furthermore, as Cathie Wood of Ark Invest pointed out last November, Bitcoin is one of those rare assets capable of performing well in both inflationary and deflationary environments. Bitcoin can be a strong risk asset when markets are booming, as well as a solid risk asset when inflation and recession fears are rampant.
Ultimately, Bitcoin’s unique risk-reward profile is what makes it so attractive as a long-term investment. It has significant upside potential, combined with some downside protection. For this reason, I am not concerned about the recent price drop. The current situation presents a unique opportunity to buy Bitcoin while it is still undervalued.
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Dominique Basulto has positions in Bitcoin. The Motley Fool posts and recommends Bitcoin. The Mad Motley has a disclosure policy.
Bitcoin is trading near a 2-month low. Is this a purchase? was originally published by The Motley Fool