On January 10, the US Securities and Exchange Commission (SEC) approved the first 11 market applications. Bitcoin (BTC -1.20%) Exchange-traded funds (ETFs). Unlike previous “bitcoin ETFs,” which were only fixated on futures contracts or holding shares of companies linked to bitcoin, these new funds hold bitcoins directly. In the long term, these ETFs should track the spot price of Bitcoin closely and represent a much easier way to invest in cryptocurrency than standalone crypto portfolios.
The SEC approvals also represent a major vote of confidence in Bitcoin’s future as a major 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 nearly 10% drop in just five days. Let’s see why its price dropped and where it could go in the next 12 months.
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Why did the price of Bitcoin fall?
The price of Bitcoin is volatile and difficult to predict. It reached an 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. This decline was largely due to rising interest rates, which pushed investors away from speculative investments. The failure of several prominent tokens and exchanges, and concerns about tightening regulations for the cryptocurrency industry.
But in 2023, the price of Bitcoin rose 154% to more than $42,000. This rise was driven by a slowdown in interest rate rises and renewed market interest in the cryptocurrency market. Many investors also expect the SEC to finally approve the first Bitcoin spot ETFs.
Therefore, Bitcoin’s recent decline has erased its gains since the start of 2024. It appears that some short-term traders bid up the cryptocurrency’s price in anticipation of recent ETF approvals and then quickly took profits as the euphoria faded.
Don’t ignore long-term triggers
Bitcoin price may remain under pressure as it passes ETF approvals. However, there are still three catalysts that could push its price higher 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 recent approval Arc21 Shares Bitcoin ETF (ARKB -6.20%)He believes the price of Bitcoin will reach $1.5 million with institutional investors buying more. Fidelity, the investment giant that just launched Fidelity Wise Origin Bitcoin Fund (FBTC), claims that the price of Bitcoin will reach $100 million by 2035 and $1 billion by 2038.
These long-term estimates may be too bullish, but I think it’s reasonable to assume that Bitcoin ETF approvals will cap a floor on its price volatility. This stability could bring back major investors and push Bitcoin’s price to all-time highs. According to Coin Price Forecast’s more moderate estimates, its price could reach $240,000 by the end of 2035.
Second, Bitcoin experiences a “halving” every four years, halving Bitcoin mining rewards. This is not great news for miners like Marathon (Mara -15.27%) And Riot control (riot -10.39%) It increases mining costs, but potentially drives up the Bitcoin market price by reducing the available supply. The next halving will occur in the first half of 2024.
Last but not least, persistent inflation could prompt more investors to accumulate Bitcoin and gold as hedges against the decline in the value of fiat currencies. More countries suffering from hyperinflation may follow El Salvador’s example and adopt Bitcoin as their national currency – which would enhance its reputation as a safe-haven asset.
Don’t let double-digit declines overshadow double-digit gains
Bitcoin is likely to see more violent volatility 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 near-term noise and focus on long-term catalysts. Simply put, investors should consider its recent withdrawal following ETF approval a good buying opportunity.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.