Bitcoin (BTC -0.49%) bulls have reason to be nervous. In the span of just a week, the entire investment narrative surrounding Bitcoin seems to have shifted, thanks to the spectacular meltdown of cryptocurrency exchange FTX (FTT 0.56%). On Nov. 9, the price of Bitcoin fell below the $16,000 mark, and it was briefly trading at its lowest price in nearly two years. This after Bitcoin had been trading near the $20,000 level for months. For the year, Bitcoin is still down 65%.
That doesn't seem to paint an overly attractive investment outlook for Bitcoin, but there are three key catalysts that could move Bitcoin higher in the coming months.
Positive signs for the economy
The first major catalyst, of course, is a brightening outlook for the U.S. economy. When Consumer Price Index (CPI) numbers came out just days after the FTX collapse, they provided an immediate boost for Bitcoin. The inflation rate, which had been 8.2% in September, cooled off to just 7.7% in October. On news that inflation appears to be declining, the price of Bitcoin immediately spiked from $16,500 to $17,500.
All the Federal Reserve tightening we've seen in 2022 appears to be working. The hope among Bitcoin bulls is that the Fed will soon decide to stop increasing rates so aggressively. If the Fed gets inflation under control, Bitcoin investors will breathe a huge sigh of relief. If the Fed stops raising rates, say traders, the price of Bitcoin could go as high as $21,344 by the end of 2022.
A positive regulatory outlook
In the wake of the FTX meltdown, most market participants are bracing for some kind of regulatory crackdown. After all, you can't just let a cryptocurrency exchange implode overnight and do nothing about it, right? So some sort of tightening of the regulatory framework for crypto is coming sooner rather than later.
Image source: Getty Images.
The good news here is that Bitcoin appears to be on the right side of any future regulatory moves made by the U.S. government. The SEC, which has been by far the most aggressive regulator when it comes to crypto, said this summer that Bitcoin is the only cryptocurrency that is not a security. Any new regulatory framework that emerges this year or in 2023 will most likely have a hands-off approach when it comes to Bitcoin.
Even if the SEC moves quickly to address the FTX meltdown, it probably won't touch Bitcoin directly. In all the postmortem analysis of the FTX meltdown, there has been absolutely no implication that Bitcoin played a role in the collapse. That might explain why Bitcoin appears to have suffered less than other cryptos in the wake of the market sell-off. Over the past seven days, Bitcoin is down "only" 19.69%. That might sound like a steep drop, but consider that Solana (SOL -3.50%) -- a crypto with extensive links to FTX CEO Sam Bankman-Fried -- is down 50.31% over that same time.
New flows of institutional money
The final catalyst is the continued flow of institutional money into Bitcoin. While there will inevitably be a slight downturn in the wake of the FTX fiasco as investors sort out the damage, the clear trend is toward more money from pension funds, endowment funds, and other institutional investors flowing into Bitcoin. The growing consensus among institutional investors is that crypto is a fundamentally new asset class and that Bitcoin is the premier asset for that asset class.
In fact, the FTX collapse might actually make Bitcoin a more sought-after crypto asset. If investors begin to trust altcoins less, then Bitcoin could emerge as even more of a safe haven for funds allocated to crypto. In other words, if you're a big pension fund manager, would you feel safer parking your money in Bitcoin or in Solana these days?
Bitcoin is a short- and long-term buy
This is about much more than just "buying the dip." This is about buying a cryptocurrency with strong long-term fundamentals. At a price of about $17,000, Bitcoin appears to be significantly undervalued. Just days before the FTX collapse, Bitcoin was trading above $21,000. This price is more indicative of Bitcoin's true valuation than the current price in the marketplace, which seems to reflect much of the fear-driven panic selling that occurred over the past week.
So, yes, getting Bitcoin at any price below $20,000 is a good idea. Bitcoin remains both a short-term and a long-term buy.
