The cryptocurrency industry has been in turmoil for over two years. It started with a move away from risk assets as recession fears spread in the economy in late 2021. Then the global economy collapsed. Terra The blockchain ecosystem set off a series of bankruptcies and forced liquidations that pushed the market down even further.
In total, value destruction exceeded $2 trillion when the market finally bottomed out. but Bitcoin (BTC -7.15%) The cryptocurrency market has roared back to life in recent months, with two potential tailwinds drawing investors’ attention: the pending approval of bitcoin spot-traded funds (ETFs) and a decline in bitcoin mining rewards later this year.
The first catalyst has already begun to bear fruit. The US Securities and Exchange Commission approved 11 spot applications for bitcoin ETFs on Wednesday, including proposals from two of the world’s three largest asset managers, Black stone And sincerity. This could spark a wave of interest among individual and institutional investors, and the resulting increase in demand could cause the price of Bitcoin to rise.
In fact, some Wall Street analysts expect Bitcoin’s value to triple or quadruple by 2025, and another analyst believes Bitcoin’s value could increase 10-fold over the next five years.
Approval of spot bitcoin ETFs could boost demand
The SEC began approving Bitcoin futures ETFs in October 2021. These products invest in futures contracts rather than the cryptocurrency itself, so they don’t track its exact price. for example, ProShares Bitcoin Strategy ETF Bitcoin has returned 39% in the past six months, but Bitcoin has increased 54% over that period.
Bitcoin ETFs will invest directly in Bitcoin and closely track its price. The appeal of these products is direct exposure to Bitcoin without the hassle of cryptocurrency exchanges and blockchain wallets. Investors can simply purchase shares of the Bitcoin Spot ETF through their existing brokerage accounts. This may boost demand among retailers and institutions.
To add details, the price of Bitcoin is determined by supply and demand, but the only variable of the outcome is demand because the total supply is fixed at 21 million coins, of which about 19.6 million have been created. Therefore, if the accessibility provided by spot Bitcoin ETFs translates into increased demand among retail and institutional investors, the price of Bitcoin could rise in the coming months and years.
Many Wall Street analysts see this as a likely outcome — especially in combination with the upcoming reduction in mining rewards — given that reputable financial institutions like BlackRock and Fidelity are participating as ETF issuers. In fact, Bernstein analyst Gautam Chugani believes that Bitcoin could reach $150,000 by 2025, which would mean a 210% rally. Standard Chartered Bank analyst Jeff Kendrick says Bitcoin could reach $200,000 by 2025, which would mean a 313% rally. Fundstrat analyst Tom Lee says $500,000 could be achieved by 2029, which would mean a 1,000% increase.
Lower Bitcoin mining rewards can reduce selling pressure
Bitcoin mining rewards are halved every time 210,000 blocks are added to the blockchain, which happens about once every four years. The next Bitcoin halving event will occur in April 2024. Analysts believe that this will lead to a significant reduction in selling pressure, simply because miners will see Bitcoin inflows reduced by 50%, meaning they will only have half the amount of cryptocurrency to sell.
To measure this, Accurate strategy Former CEO Michael Saylor believes selling pressure will decrease from $12 billion annually to $6 billion annually after Bitcoin mining rewards were halved in April. This decrease in selling pressure will be an increase in demand, which could cause the price of Bitcoin to rise.
In fact, in 2022, Saylor predicted that Bitcoin would reach $500,000 within the next decade, meaning a roughly 1,000% rise. However, he was recently quoted as saying that Bitcoin could reach $5 million at some point in the future. This means an increase of 10,230%, which seems a ridiculous number. But there is a historical precedent for events in which the price of Bitcoin was halved, which led to a rise in the price of Bitcoin.
The chart below lists the dates of past halving events and details the returns generated by Bitcoin over the subsequent two-year periods.
|
Bitcoin halving event date |
Bitcoin’s Return (After 2 Years) |
|---|---|
|
2012 |
2,964% |
|
2016 |
922% |
|
2020 |
348% |
Data source: Fidelity.
Here’s the bottom line: There are two catalysts that could push Bitcoin higher in the coming months and years. This makes now a good time to buy a small position. But investors should remember that cryptocurrencies are a young, volatile and risky asset class. Bitcoin has fallen by 45% or more four times in the past five years, and a similar decline is possible (if not likely) at some point in the future.