After a disappointing 2022, Bitcoin (BTC 2.99%) is having a remarkable bounce-back year, as its price has skyrocketed 115% in 2023 (as of Nov. 10). Nonetheless, this leading cryptocurrency remains 47% below its all-time high price.
But with Bitcoin experiencing strong momentum in recent weeks, investors probably have their eyes set on a new milestone. Can this top digital asset reach $100,000, which translates to a roughly 170% return from today's price?
Here's why I think that's a real possibility.
Upcoming catalysts
The current period is rare in that it's a time when Bitcoin could benefit from three potential catalysts in the near term, all of which could propel its price to new heights. The first one is what's on everyone's mind these days, and that's the pending approvals of spot exchange-traded funds (ETFs). A long list of major asset management firms, like BlackRock, Fidelity, and WisdomTree, among others, have all filed applications with the Securities and Exchange Commission (SEC), with a hard deadline for a decision coming in January 2024.
Not only would this place a stamp of approval on Bitcoin, making it a legitimate financial asset that leading traditional financial companies are involved with, but it would provide a convenient, regulatory-friendly way for many investors to gain exposure to Bitcoin's price without having to directly own the digital asset. It's not hard to see Bitcoin's price surging should the SEC approve these applications.
The other potential catalyst is a more accommodative central bank. For the last year and a half, the Federal Reserve has aggressively hiked interest rates to combat inflation, and this policy stance might continue. However, should Fed Chair Jay Powell and his team believe that they are making serious progress toward taming inflation, then perhaps they will not only pause rate increases but start to lower them sometime next year.
Looser monetary policy is typically a boon for risky assets like stocks and Bitcoin. With interest rates lower, investors are willing to take on more risk to achieve a certain level of return. And this could draw more capital toward Bitcoin.
CRYPTO: BTC
Key Data Points
While these first two catalysts aren't certain to happen, the next one is. Bitcoin's inflation rate gets cut in half roughly every four years. This is called a halving. The next halving is expected to happen in April 2024, at which point Bitcoin's new supply schedule will give it a much lower annual inflation rate than gold. This is important because demand that has trended higher over time, coupled with a reduced supply, should lead to a rising price.
Bitcoin's history tells this same story. In the months leading up to a halving, through the months following this event, the digital asset's price has entered a strong bull market. This means now is one of the best times to be a buyer.
Even more impressive, despite its volatility, Bitcoin has always managed to eclipse its previous high to reach a new one. Of course, past results aren't indicative of future returns, but if history is any indication, there's a good chance that Bitcoin could hit $100,000 in the next few years.
Size accordingly
It's easy to get bullish on Bitcoin, but investors should first assess their own risk tolerance before adding it to their portfolios. A tiny allocation (maybe 1%) might be a good place to start.
Then, over time, the goal should be to continue learning more about Bitcoin and its unique characteristics, and track the catalysts I discussed above. If you become more comfortable and your knowledge expands, then it could be a smart idea to allocate more capital to Bitcoin. Don't forget that it's critical to maintain a long-term mentality.
