On Jan. 10, the U.S. Securities and Exchange Commission (SEC) approved the market’s first 11 Bitcoin (BTC 0.06%) exchange-traded funds (ETFs). Unlike previous “Bitcoin ETFs,” which were pinned only to future contracts or held shares of Bitcoin-related companies, these new funds directly hold Bitcoins. Over 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 stand-alone crypto wallets.
The SEC’s approvals also represent a big vote of confidence in Bitcoin’s future as a mainstream asset. But Bitcoin’s price tumbled after the first batch of ETFs started trading on Jan. 11. As of Jan. 13, it trades at about $42,500 — representing a near-10% decline in just five days. Let’s see why its price dropped and where it might be headed over the next 12 months.
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Why did Bitcoin’s price decline?
Bitcoin’s price is volatile and difficult to predict. It hit its all-time high of about $69,000 during the peak of the crypto rally in Nov. 2021 but dropped to just $16,000 by the end of 2022. That decline was caused largely by rising interest rates, which drove investors away from speculative investments, the failures of several high-profile tokens and exchanges, and concerns regarding tighter regulations for the crypto industry.
But in 2023, Bitcoin’s price soared 154% to over $42,000. That rally was driven by slower rate hikes and the market’s renewed interest in the crypto market. Many investors also expected the SEC to finally approve Bitcoin’s first spot price ETFs.
Therefore, Bitcoin’s recent decline only erased its gains since the beginning of 2024. It seems like some short-term traders bid up the digital currency’s price in anticipation of the recent ETF approvals and then quickly took profits as the euphoria faded.
Don’t ignore the long-term catalysts
Bitcoin’s price could remain under pressure as it moves past the ETF approvals. However, three catalysts that could drive its price higher remain on the horizon.
First, the ETF approvals will make it easier for large institutional investors to accumulate Bitcoin on the open market. Ark Invest’s Cathie Wood, who oversees the recently approved Ark 21Shares Bitcoin ETF (ARKB -6.20%), believes the price of Bitcoin will hit $1.5 million as institutional investors buy more. Fidelity, the investment giant that just launched the Fidelity Wise Origin Bitcoin Fund (FBTC), claims Bitcoin’s price will hit $100 million by 2035 and $1 billion by 2038.
Those long-term estimates might be too bullish, but I think it’s reasonable to assume the Bitcoin ETF approvals will set a floor under its volatile price. That stabilization could bring back big investors and drive Bitcoin’s price back toward its all-time highs. According to Coin Price Forecast’s more moderate estimates, its price might reach $240,000 by the end of 2035.
Second, Bitcoin experiences a “halving” every four years, which cuts the rewards for Bitcoin mining in half. That isn’t great news for miners like Marathon (MARA -15.27%) and Riot (RIOT -10.39%) because it increases their mining costs, but it will likely drive Bitcoin’s market price higher by reducing the available supply. The next halving will occur in the first half of 2024.
Last but not least, persistent inflation could drive more investors to accumulate Bitcoin and gold as hedges against the devaluation of fiat currencies. More countries struggling with hyperinflation might even follow El Salvador’s lead and adopt Bitcoin as a national currency — which would further solidify its reputation as a safe haven asset.
Don’t let double-digit drops overshadow the triple-digit gains
Bitcoin will likely go through more wild swings and double-digit drops over the next 12 months. But over the next decade, it could generate triple-digit gains for investors who tune out all the near-term noise and focus on the long-term catalysts. Simply put, investors should consider its recent post-ETF approval pullback 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.