While Bitcoin (BTC -0.81%) may be up nearly 70% for the year, momentum appears to be slowing as investors recalibrate their expectations for the year ahead. Bitcoin's current price of $28,000 -- a level that it reached in mid-March for the first time in nine months -- has proven harder to break through than many analysts originally thought.
This price level, however, could present an interesting buying opportunity for Bitcoin. There are two key catalysts worth considering that could send Bitcoin soaring by the end of the year. Here's a closer look at why the second quarter of 2023 could be a defining moment for Bitcoin going forward.
Macroeconomic outlook
The primary factor influencing the price of Bitcoin right now is the macroeconomic outlook for the U.S. economy. As a result, all eyes are on the Federal Reserve right now. Rate hikes are bad for crypto, so the recent round of Fed rate hikes has kept a ceiling on Bitcoin's price. Every time the market thinks that the Fed might be done with tightening, it chooses to raise rates once again, and that has made a true Bitcoin breakout impossible.
Image source: Getty Images.
That's why the period between now and summer is so important. If you believe that the worst of the Fed rate hikes are behind us, that is going to be a very bullish signal for Bitcoin. Already, Bitcoin bulls are predicting that this crypto could skyrocket to $100,000 if the Fed announces an end to its rate hikes.
Bitcoin halving
The second major catalyst for Bitcoin is its upcoming halving, now scheduled for April 2024. The halving is an event that takes place every four years and results in crypto mining rewards for Bitcoin miners being cut in half. Currently, Bitcoin miners receive a reward of 6.25 BTC for every block on the blockchain they successfully mine. After the next halving takes place, that reward will be cut to 3.125 BTC.
While this halving might sound like a lot of crypto mumbo jumbo, it is actually a key feature of Bitcoin. Each halving event increases the scarcity of Bitcoin, which is already capped at a total lifetime supply of 21 million coins. Each halving event also makes Bitcoin more deflationary over time.
Both of these are viewed by the market as being extremely positive. As a result, past Bitcoin halving events are associated with significant price appreciation. Moreover, this price appreciation occurs according to a fairly regular pattern.
According to one model by crypto hedge fund Pantera Capital, for example, these price gains typically start to be seen 477 days before the actual halving event itself, at which point Bitcoin goes ballistic. Keeping in mind that past performance is no guarantee of future performance, this does suggest that Bitcoin should continue to gain in value in April, which has typically been a bullish month for Bitcoin anyway. By summer, this pattern should be immediately recognizable to Bitcoin investors.
Risk factors
Of course, Bitcoin's path to breakout performance is not clear by any means. There are still plenty of analysts calling for a Bitcoin correction. They claim that Bitcoin has soared too high, too fast, this year, and a cooling-off period is going to come sooner rather than later. And Bitcoin perma-bear Peter Schiff has once again opined that Bitcoin is eventually going to zero.
Moreover, if the global banking crisis intensifies, all bets are off the table. In early 2023, Bitcoin became a "safe haven" for investors looking for refuge from the hidden perils of the traditional banking system. But there is no guarantee that this "safe-haven" investment thesis is going to persist. It seems likely that, if things really get out of hand, that people are going to go back to putting their money into the ultimate safe-haven asset: gold.
Should you buy Bitcoin?
Right now, though, there are simply too many factors pointing in Bitcoin's favor that are impossible to ignore. As a long-term investor, I'm enthralled by Bitcoin's future growth prospects. As Cathie Wood of Ark Invest has pointed out in her valuation models, Bitcoin has become an increasingly important part of the global financial system. This is a trend that is likely to persist.
I'm also optimistic that the global macroeconomic outlook is going to improve by mid-2024, thanks to the actions of the Federal Reserve. And, for a little cherry on top, Bitcoin is now just one year away from its next halving.
When you combine all this together, Bitcoin is absolutely my top cryptocurrency to buy before summer.
