News
Why the price of Bitcoin (BTC) fell this week
On January 10, the United States Securities and Exchange Commission (SEC) approved the first 11 Bitcoin (CRYPTO:BTC) exchange-traded fund (ETF). Unlike previous “Bitcoin ETFs,” which were only linked to future contracts or held shares of Bitcoin-related companies, these new funds hold Bitcoins directly. In the long term, these ETFs should closely track the spot price of Bitcoin and represent a much simpler way to invest in cryptocurrency than standalone crypto wallets.
THE SEC Approvals also represent a big vote of confidence in the future of Bitcoin as a primary asset. But the price of Bitcoin fell after the first batch of ETFs began trading on January 11. As of January 13, it was trading at around $42,500, representing a drop of almost 10% in just five days. Let’s take a look at why its price has fallen and where it could be heading over the next 12 months.
Image source: Getty Images.
Why has the price of Bitcoin fallen?
The price of Bitcoin is volatile and difficult to predict. It reached its all-time high of around $69,000 at the height of the crypto rally in November 2021, but fell to just $16,000 by the end of 2022. This decline was largely caused by rising interest rates , which kept investors away from speculative investments. the failures of several high-profile tokens and exchanges, and concerns over stricter regulations for the crypto industry.
But in 2023, the price of Bitcoin has soared 154% to over $42,000. This rally was driven by slower rate increases and renewed market interest in the crypto market. Many investors also expected the SEC to finally approve the first Bitcoin spot price ETFs.
Therefore, Bitcoin’s recent decline has only erased its gains since the start of 2024. It appears that some short-term traders bid up the price of the digital currency in anticipation of recent ETF approvals and then quickly took profits as the euphoria faded.
Don’t Ignore Long-Term Catalysts
Bitcoin price could remain under pressure as it exceeds ETF approvals. However, three catalysts that could push its price higher remain on the horizon.
First, ETF approvals will make it easier for large institutional investors to accumulate Bitcoin on the open market. Cathie Wood of Ark Invest, who is overseeing the recently approved project Ark 21Shares Bitcoin ETF (NYSEMKT:ARKB), estimates that the price of Bitcoin will reach $1.5 million as institutional investors buy more. Fidelity, the investment giant which has just launched the Fidelity Wise Origin Bitcoin Fund (FBTC), claims that the price of Bitcoin will reach $100 million by 2035 and $1 billion by 2038.
The story continues
These long-term estimates may be overly optimistic, but I think it’s reasonable to assume that the Bitcoin ETF approvals will set a floor below its volatile price. This stabilization could bring back large investors and bring the price of Bitcoin back to its all-time highs. According to more moderate estimates from Coin Price Forecast, its price could reach $240,000 by the end of 2035.
Second, Bitcoin undergoes a “halving” every four years, which cuts the rewards from Bitcoin mining in half. This is not good news for miners like Marathon (NASDAQ: MARA) and Riot (NASDAQ: RIOT) because it increases their mining costs, but it will likely drive up the market price of Bitcoin by reducing the available supply. The next halving will take place in the first half of 2024.
Finally, persistent inflation could encourage more investors to accumulate Bitcoin and gold to protect against the devaluation of fiat currencies. Other countries struggling with hyperinflation could even follow El Salvador’s lead and adopt Bitcoin as their national currency – further cementing its reputation as a safe haven.
Don’t let double-digit declines overshadow triple-digit gains
Bitcoin will likely see wilder swings and double-digit declines over the next 12 months. But over the next decade, it could generate triple-digit gains for investors who ignore all the short-term noise and focus on the long-term catalysts. Simply put, investors should view the recent decline in ETF approval as a good buying opportunity.
Should you invest $1,000 in Bitcoin right now?
Before buying Bitcoin stocks, consider this:
The Motley Fool Stock Advisor analyst team has just identified what they believe to be the 10 best stocks for investors to buy now… and Bitcoin was not one of them. The 10 selected stocks could produce monster returns in the years to come.
Stock Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. The Stock Advisor service has more than tripled the performance of the S&P 500 since 2002*.
*Stock Advisor returns as of January 8, 2024
Leo Sun has no position in any of the stocks mentioned. The Motley Fool posts and recommends Bitcoin. The Mad Motley has a disclosure policy.
Why the price of Bitcoin (BTC) fell this week was originally published by The Motley Fool