The U.S. Securities and Exchange Commission (SEC) recently approved 11 new Bitcoin exchange-traded funds (ETFs), making them the first ETFs to directly hold Bitcoins instead of future contracts or shares of Bitcoin-related companies. These new ETFs are expected to closely track the spot price of Bitcoin and provide a more convenient way for investors to enter the cryptocurrency market.
This approval from the SEC is a significant vote of confidence in Bitcoin’s future as a mainstream asset. However, the price of Bitcoin experienced a 10% decline in just five days following the approval on Jan. 11. Let’s take a closer look at why this happened and what could be in store for Bitcoin in the next 12 months.
Bitcoin’s price is notoriously volatile and difficult to predict. It reached an all-time high of $69,000 in Nov. 2021 but dropped to $16,000 by the end of 2022 due to rising interest rates, failures of high-profile tokens and exchanges, and concerns about stricter regulations. However, in 2023, Bitcoin’s price saw a 154% increase to over $42,000, driven by slower rate hikes and renewed interest in the crypto market. The recent decline only erased the gains made since the beginning of 2024, indicating that short-term traders may have caused the price to artificially inflate in anticipation of the ETF approvals.
Despite the short-term drop, there are three long-term catalysts that could potentially drive Bitcoin’s price higher. First, the ETF approvals will make it easier for institutional investors to enter the market, with some predicting Bitcoin’s price to reach $1.5 million and even $100 million by 2035. Second, the upcoming “halving” in 2024, which reduces the rewards for Bitcoin mining, may increase its market price by limiting the supply. And third, persistent inflation may drive more investors to view Bitcoin as a hedge against fiat currency devaluation, especially if more countries follow El Salvador’s lead and adopt it as a national currency.
While Bitcoin may continue to experience wild swings and double-digit drops in the short term, it could potentially generate significant gains for long-term investors who focus on these catalysts. Therefore, the recent pullback following the ETF approvals may present a buying opportunity for those looking to invest in Bitcoin. However, it’s important to consider all factors and do thorough research before investing.
Ultimately, the decision to invest in Bitcoin is a personal one and should be made after careful consideration and consultation with a financial advisor. The Motley Fool Stock Advisor team has identified 10 stocks that they believe have the potential for significant returns, and Bitcoin is not among them. However, their service provides guidance on building a portfolio and regular updates from analysts, which could be beneficial for investors. It’s crucial to tune out the near-term noise and focus on the long-term outlook when considering investing in Bitcoin or any other asset.