Bitcoin’s recent pullback from its all-time high could present a unique buying opportunity. Despite being up more than 50% for the year, the past three months have been disappointing. Bitcoin is now trading more than 10% below its all-time high of $73,797, which it set back in mid-March.
Bitcoin’s recent price action
But no worries. We’ve seen this story before with Bitcoin, and seasoned crypto investors know that short-term declines in the price of Bitcoin can often present unique long-term buying opportunities. So here are two good reasons to stop worrying and buy the dip.
The new spot Bitcoin ETFs
At some point, it starts to sound like a broken record, but here’s the reality: Huge investor inflows into the new spot Bitcoin ETFs are likely to send the price of Bitcoin higher. While there was some cooling of investor inflows into the ETFs in May, the pace of capital being committed to the cryptocurrency seems to be picking up again. At one point in early June, the new Bitcoin ETFs had a 19-day streak of net investor inflows. To date, more than $30 billion has flowed into the new ETFs.
So that leads to the inevitable question: Why isn’t the price of Bitcoin going up, if we’re seeing all these ETF inflows? One answer could be that the top buyers of the new ETFs are not retail investors (people like you and me) or large institutional investors. Instead, the primary buyers appear to be Wall Street hedge funds. And that’s simply not the type of patient, buy-and-hold money that is going to send the price of Bitcoin higher over the long haul.
The good news here is that retail investors appear to be boosting their allocations to Bitcoin. And, over time, we can expect more institutional investors to start buying crypto, too.
The halving
And don’t give up on the halving quite yet. While the performance of Bitcoin since the halving has been underwhelming, the reality is that any halving event does not magically lead to stratospheric boosts in the price of Bitcoin. The halving reduces the rate of creation of new Bitcoin by one-half, and this is what sets off a chain reaction of events that can lead to higher Bitcoin prices. In many ways, it’s similar to the way monetary policy works, in that rate cuts or other measures can take time to impact the broader economy.
In short, financial impacts can take time to develop, and it may be several months until we see the price of Bitcoin really take off. Billionaire venture capitalist Chamath Palihapitiya recently analyzed the performance of Bitcoin during the previous halving cycle (which started in May 2020) and found that Bitcoin’s performance did not really start to take off until several months into the halving cycle. At that point, the Bitcoin chart went parabolic, and the cryptocurrency went on to set a new all-time high of $69,000 in that cycle.
The halving cycle and its impact on Bitcoin’s price
Will Bitcoin hit $100,000 this year? Against this backdrop, there are plenty of analysts and investors who still think Bitcoin could hit $100,000 or higher by the end of this year. According to Standard Chartered, the rise of pro-Bitcoin rhetoric on the election campaign trail is yet another factor that could send Bitcoin to $100,000. In an ultra-bullish scenario, Bitcoin could hit $150,000.
If $150,000 is the upper level for Bitcoin this year, the lower level could be $42,000. Back in March, JPMorgan Chase predicted that Bitcoin would lose 33% of its value in the aftermath of the halving. This bearish scenario focused on the chaotic impact that the halving could have on the Bitcoin mining industry.
Overall, I’m not worried about Bitcoin at $65,000. The only time I will be worried is if Bitcoin drops below the $42,000 price level. Thankfully, this seems unlikely, given Bitcoin’s ETF investor inflows and growing mainstream adoption. Thus, if you are risk-averse and bullish on Bitcoin’s long-term outlook, now could be a perfect time to buy the dip.
Bitcoin ETF inflows and their impact on the price
