On January 10, the US Securities and Exchange Commission (SEC) approved the market's first 11 Bitcoin (BTC -1.96%) Exchange Traded Funds (ETFs). Unlike previous “Bitcoin ETFs,” which were only tied to future 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 provide a much easier way to invest in the cryptocurrency than standalone crypto wallets.
The SEC approvals also represent a major vote of confidence in Bitcoin's future as a mainstream asset. But Bitcoin's price plummeted after the first ETFs began trading on January 11. On January 13, it was trading at around $42,500 – down almost 10% in just five days. Let's see why the price has fallen 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 its all-time high of around $69,000 during the peak of the crypto rally in November 2021, but fell to just $16,000 by the end of 2022. This decline was largely caused by rising interest rates, which discouraged investors from speculative investments. the failure of several high-profile tokens and exchanges, as well as concerns about stricter regulations for the crypto industry.
But in 2023, the price of Bitcoin increased by 154% to over $42,000. This rally was fueled by slower rate hikes and renewed market interest in the crypto market. Many investors also expected that the SEC would finally approve Bitcoin's first spot price ETFs.
Therefore, Bitcoin’s recent decline has only wiped out its gains since the start of 2024. It appears some short-term traders pushed up the price of the digital currency in anticipation of the recent ETF approvals, then quickly took profits as the euphoria faded.
Don't ignore the long-term catalysts
Bitcoin price may remain under pressure as ETF approvals are exceeded. However, three catalysts remain in sight that could push the price higher.
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 recently approved permit Ark 21Shares Bitcoin ETF (ARKB -6.20%), expects the price of Bitcoin to reach $1.5 million as institutional investors buy more. Fidelity, the investment giant that just launched this 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 overly optimistic, but I think it is reasonable to assume that Bitcoin ETF approvals will set a floor on the volatile price. This stabilization could bring back large investors and push the Bitcoin price back to its all-time high. According to the more moderate estimates from Coin Price Forecast, the price could reach $240,000 by the end of 2035.
Second, Bitcoin experiences a “halving” every four years, which halves the rewards for Bitcoin mining. This is not good news for miners Marathon (MARA -15.27%) and revolt (RIOT -10.39%) because it increases their mining costs, but it will likely drive up 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, ongoing inflation could lead to more investors accumulating Bitcoin and gold as a hedge against the devaluation of fiat currencies. Other countries struggling with hyperinflation could even follow El Salvador's lead and adopt Bitcoin as their national currency – further cementing its reputation as a safe haven.
Don't let double-digit declines overshadow triple-digit gains
Bitcoin is likely to see further wild swings and double-digit declines over the next 12 months. But over the next decade, it could generate triple-digit gains for investors who ignore any short-term turbulence and focus on the long-term catalysts. Simply put, investors should view the recent decline following ETF approval as 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.