On January 10, the United States Securities and Exchange Commission (SEC) approved the first 11 bitcoin (CRYPT: BTC) Exchange-traded funds (ETFs). Unlike previous โBitcoin ETFs,โ which were tied solely to futures 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 easier way to invest in the cryptocurrency than standalone crypto portfolios.
He SEC Approvals They also represent a huge vote of confidence in the future of Bitcoin as a major asset. But the price of Bitcoin fell after the first one. ETF lot It began trading on January 11. As of January 13, it is trading at around $42,500, representing a drop of almost 10% in just five days. Let's look at why its price dropped and where it could be headed in the next 12 months.
Why did the price of Bitcoin drop?
The price of Bitcoin is volatile and difficult to predict. It reached its all-time high of around $69,000 during the peak of the cryptocurrency rally in November 2021, but fell to just $16,000 by the end of 2022. That decline was largely due to rising interest rates, which pushed investors away. investors of speculative investments. the failures of several high-profile tokens and exchanges, and concerns about stricter regulations for the crypto industry.
But in 2023, the price of Bitcoin skyrocketed 154% to over $42,000. That rally was fueled by slower rate increases and renewed market interest in the cryptocurrency market. Many investors were also hoping that the SEC would finally approve the first Bitcoin spot price ETFs.
Thus, Bitcoin's recent crash only erased its gains from early 2024. It appears that some short-term traders drove up the price of the digital currency in anticipation of the 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 passes ETF approvals. However, there are still three catalysts on the horizon that could drive up its price.
First, the 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 Ark 21Shares Bitcoin ETF (NYSEMKT:ARKB), believes that the price of Bitcoin will reach $1.5 million as institutional investors buy more. Fidelity, the investment giant that has just launched the Fidelity Wise Origin Bitcoin Fund (FBTC), states that the price of Bitcoin will reach $100 million in 2035 and $1 billion in 2038.
Those long-term estimates may be overly optimistic, but I think it's reasonable to assume that Bitcoin ETF approvals will establish a floor under its volatile price. That stabilization could bring back big investors and push the price of Bitcoin back toward its all-time highs. According to the most conservative estimates from Coin Price Forecast, its price could reach $240,000 by the end of 2035.
Second, Bitcoin undergoes a โhalvingโ every four years, which halves the rewards for Bitcoin mining. That's not great news for miners like Marathon (NASDAQ: MARA) and Riot (NASDAQ: RIOT) because it increases your mining costs, but will likely increase the market price of Bitcoin by reducing the available supply. The next halving will occur in the first half of 2024.
Last but not least, persistent inflation could lead more investors to accumulate Bitcoin and gold as a hedge against devaluation of fiat currencies. More countries struggling with hyperinflation could even follow El Salvador's lead and adopt Bitcoin as their national currency, further solidifying its reputation as a safe haven asset.
Don't Let Double-Digit Declines Overshadow Triple-Digit Gains
Bitcoin is likely to see more swings and double-digit declines over the next 12 months. But over the next decade, it could generate triple-digit gains for investors who tune out all the short-term noise and focus on long-term catalysts. Simply put, investors should consider the recent post-ETF approval pullback as a good buying opportunity.
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leo sun has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.
Why Bitcoin (BTC) Price Crashed This Week was originally published by The Motley Fool
