The cryptocurrency market can be thrilling, but it also turns frustrating every so often. For example, Bitcoin (BTC 0.18%) looked ready to shake off the crypto winter doldrums and go for a run in the first half of 2023, posting a price gain of 83% in six months. But that's where the proverbial lactic acid set in and Bitcoin's price surge stopped. It didn't exactly crash, but nobody gets excited about a 4% price drop since the start of July.
Is it time to give up on this stalled cryptocurrency, cash in whatever gains Bitcoin has given you so far, and move on to a different investing adventure? The swooning price chart suggests that some Bitcoin owners are doing exactly that, but I would think twice before selling my crypto right now. In fact, I bought some Bitcoin last week alongside robust portions of Ethereum and Polkadot, and I plan to grab more of these three crypto names in August.
Here's why I'm not a Bitcoin seller right now, but an active buyer instead. You don't have to follow suit, but feel free to consider my reasons before hitting the sell button on your own Bitcoin holdings.
CRYPTO: BTC
Key Data Points
Chart squiggles never tell the whole story
Bitcoin's chart can be a useful tool and an important indicator, but it is far from the definitive authority on the cryptocurrency's future performance. The reality is, Bitcoin's trajectory has always been volatile. The general price trend has been strongly positive in the long run, but deep potholes are a common hazard on this journey. So are extended downturns where the exciting peaks of yesteryear eventually look like impossible castles in the air -- until the next price climb comes along.
You never know exactly where Bitcoin is going next. At the same time, the fundamental qualities that lifted the digital currency to $29,200 per coin so far are not going away. The hardcoded limit of 21 million tokens makes Bitcoin immune to long-term inflation and the heavily encrypted blockchain ledger hasn't been hacked since 2010. Crypto exchanges and individual user accounts are vulnerable to criminal exploits, but Bitcoin itself has defeated every hacking attempt for years.
So I wouldn't read too much into a month-long slowdown in Bitcoin's price gains. The pause looks like just another speed bump, not a brick wall.
Bitcoin has some market-moving catalysts on tap
There are several real-world events on the horizon that could spark Bitcoin's growth again. The next "halvening," currently slated for April 2024 is an important one. This process cuts the reward for mining Bitcoin in half, roughly once every four years. The move typically leads to an increase in Bitcoin's price because it becomes harder to earn Bitcoin tokens through the mining process. It's a classic supply-and-demand situation where tighter limits on the supply side should lead to higher prices in an open market.
Halvenings don't result in overnight price jumps, but Bitcoin's chart typically starts rising a few months in advance and the positive effect sticks around for several months.
Furthermore, giant investment companies such as BlackRock, WisdomTree, and Invesco are attempting to start exchange-traded funds tracking Bitcoin's spot-market value. If successful, these familiar investor tools may open the floodgates of institutional investors putting real money into the cryptocurrency sector. And there we go again, changing the balance of the old supply-and-demand equation with a potentially massive uptick in dollar-based demand.
The U.S. Securities and Exchange Commission (SEC) is not making this game-changing idea easy, turning down every exchange-traded fund (ETF) application and appeal so far. But when financial elephants like BlackRock lean into the Bitcoin ETF proposition, things might change. These crypto newcomers know how to play the regulatory game.
And have you seen this interesting chart?
I stumbled across this visual gem today:
Bitcoin Transactions Per Day data by YCharts
The leading cryptocurrency may not command record prices these days, but people are using it for real-world transactions like never before. The number of daily Bitcoin transactions set a fresh record in May 2023, and never really backed down from that level. Two months later, the daily transaction volume still puts the old record (from January 2018) to shame.
The dollar value of these transactions is relatively small compared to previous peaks. Still, the plentiful trading volume suggests that Bitcoin-based decentralized finance apps may be gaining traction at long last. Getting blockchain-based financial tools into the hands of everyday consumers might be the biggest game changer of all. I'll keep an eye out for further evidence to support this conclusion, but I'm not sure what else could generate these outsize trading volumes.
And that's why I think it's a bad idea to step away from Bitcoin right now. The grandfather of crypto has many potential catalysts for future price gains, and it would be a shame to miss out on the next big bull run. I can't promise a carbon-copy rerun of the 2017 or 2021 surges, and every halvening drops into a different market environment, but I can see the writing on the wall.
That stalled Bitcoin chart should catch wind again over the next year and a half, and I'd rather prepare for that surge too early than too late. Keep your Bitcoin exposure as modest as you like, just in case something goes terribly wrong along the way, but you probably want to have a little bit of skin in the Bitcoin game.
