Bitcoin's (BTC 2.20%) history is characterized by a boom-and-bust cycle. Investor enthusiasm and risk-seeking behavior create the necessary conditions for a raging bull market. But then, as pessimism takes hold of the market, this cryptocurrency seems to go into free fall. It seems like this situation always repeats itself.
Right now, Bitcoin is 47% below its peak price, which was set about two years ago. However, it's had a wonderful run so far this year. Some investors might be considering adding this asset to their portfolios in the hopes of riding the bullish momentum.
Should investors buy Bitcoin while it's still below $40,000? Here's why that looks like a smart decision.
A safe-haven asset?
Cryptocurrencies in general are viewed as an extremely risky asset class. And it makes sense. Not only is the volatility something that most investors simply can't handle, but the opaqueness, complexity, and major failures of some high-profile industry names add to the worries. It's no wonder many choose to avoid this asset class altogether.
But this year, the price action of different assets has been very interesting and tells us an insightful story. The S&P U.S. Treasury Bond Index, which measures the performance of the Treasury bond market, is up 0.70% this year (as of Nov. 15). Treasuries are viewed as the ultimate safe haven asset, especially in times of economic or geopolitical uncertainty, both factors that seem to be at elevated levels right now.
Gold, another asset that market participants turn to for safety, is up just 7% this year. When inflation is still above average, coupled with everything else going on in the world like war and political turmoil, you'd expect more capital to flock to the precious metal.
Bitcoin's price, on the other hand, has skyrocketed 114% in 2023. Is this top cryptocurrency now becoming a safe asset in the minds of the investment community? While it's hard to point to exact reasons why an asset goes up or down, Bitcoin's price movement in recent times is certainly telling. Perhaps it's not so risky after all.
CRYPTO: BTC
Key Data Points
Upcoming catalysts
While Bitcoin's big-picture aspects are certainly compelling enough reasons to own it, some catalysts in the near term could continue propelling the price higher. The most important news related to Bitcoin in recent months is the potential approval of spot exchange-traded funds. Major asset managers, like BlackRock and Fidelity, among many others, have filed applications with the Securities and Exchange Commission. A hard deadline for a decision comes in January. An approval could introduce large pools of capital to Bitcoin, which could drive the price up.
Then there's the upcoming halving, set to take place in April 2024. This event, which cuts the rate of Bitcoin's new supply in half, happens roughly every four years. Historically, Bitcoin's price has experienced a bullish trend in the several months leading up to a halving, as well as in the months following. Now might be one of the best times to buy this digital asset.
Investors also can't ignore the overall macroeconomic backdrop. The latest inflation data, as measured by the Consumer Price Index, showed a step in the right direction. And this could mean that the Federal Reserve pauses rate hikes, and maybe even starts to reduce rates sometime next year. This could be a boon for risky assets like Bitcoin.
Buying Bitcoin below $40,000 might look like one of the smartest investing decisions in hindsight.
