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Bitcoin is trading near a 2-month low. Is it a purchase?
When Bitcoin (CRYPTO:BTC) fell below $60,000 in early May, marking a two-month low. Cryptocurrency investors were understandably concerned, especially considering all the hoopla surrounding the Bitcoin halving that had occurred just two weeks earlier. The feeling wasn’t so much fear as disbelief: This shouldn’t happen!
As the price of Bitcoin has stabilized at the $65,000 level, some of this concern has dissipated. But Bitcoin it is still 10% below its all-time high of $73,750 from mid-March. So is this recent drop in Bitcoin price a buying opportunity or not?
The return of Bitcoin ETF inflows
Probably, the launch of the new one spot Bitcoin Exchange Traded Funds (ETFs) in early January was the biggest factor pushing Bitcoin to new highs this year. They have attracted a massive influx of money from new investors for nearly three months. Therefore, when investor inflows into these ETFs began to slow in late April and early May, it was a warning signal to the market about the future direction of Bitcoin’s price.
That’s why the sudden return of investor inflows into spot Bitcoin ETFs in mid-May is such a positive sign. The latest numbers are now available and it appears that money is flowing into Bitcoin ETFs again. On May 15, Bitcoin ETFs saw their best daily inflows in nearly two weeks. Of course, this may only be a short-term inconvenience.
But there are good reasons to think this is part of a long-term dynamic, in which investors decide to allocate a larger percentage of their portfolios to Bitcoin.
The arrival of new institutional investors
At almost the same time that investor inflows began to slow, Black rockthe issuer of iShares Bitcoin Trust, suggested that a new wave of institutional investors will soon begin allocating a percentage of their portfolios to Bitcoin ETFs. BlackRock has identified pension funds, sovereign wealth funds and endowment funds in particular as the most likely candidates to buy Bitcoin.
Image source: Getty Images.
It just seemed like big bluster at the time, but there’s no denying that several large institutional investors have recently announced large positions in new Bitcoin ETFs. The latest name is the State of Wisconsin Investment Board (SWIB), which recently announced a $100 million investment in the iShares Bitcoin Trust. SWIB manages more than $156 billion in assets, including holdings of the Wisconsin Retirement System, the State Investment Fund and other state trust funds.
This is huge news for Bitcoin, because pension funds are very different animals than hedge funds. They have a fiduciary duty to protect the value of their investments and have no intention of wading into the deep end of a dangerous shark-infested pool. So keep an eye out for similar types of traditionally risk-averse institutional investors putting their money into Bitcoin. Over time, consistent buying by these types of institutional investors should help drive the price of Bitcoin higher.
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The long-term outlook for Bitcoin
Most importantly, the long-term outlook for Bitcoin remains intact. Despite all the economic warning signs, Wall Street investment firm Bernstein actually doubled its previous predictions for the price of Bitcoin. Bernstein predicts a Bitcoin price of $100,000 by the end of the year and $150,000 by the end of 2025.
Furthermore, as Ark Invest’s Cathie Wood pointed out last November, Bitcoin is one of those rare assets capable of performing well in both inflationary and deflationary environments. Bitcoin can be a strong risk-off asset when markets are rallying, as well as a strong risk-off asset when fears of inflation and recession run rampant.
Ultimately, Bitcoin’s unique risk-reward profile is what makes it so attractive as a long-term investment. It has significant upside potential, also combined with a measure of downside protection. For this reason, I am not concerned about the recent price drop. The current situation presents a unique opportunity to buy Bitcoin while it is still undervalued.
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Domenico Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.
Bitcoin is trading near a 2-month low. Is it a purchase? was originally published by The Motley Fool