As 2024 approaches, investors should take a step back and assess their portfolio allocations. Ask yourself which of your positions may be primed for profit-taking and which may be worth doubling down on.
Among the variables that could move the markets in 2024 are possible interest rate cuts from the Federal Reserve, whether the U.S. is headed toward recession, and the volatility that tends to occur during election years. During otherwise cloudy macroeconomic conditions, investors may want to consider allocating a portion of their portfolio to alternative assets.
Typically, alternative investments can include commodities such as gold, physical assets like real estate, or even artwork. However, during the past several years a new asset class has garnered both attention and significant capital investment: cryptocurrency.
Although crypto is still fairly new as an asset class, opening a small position in Bitcoin (BTC 1.41%) may prove to be a savvy move for long-term investors. Trading at a price of roughly $42,000 per token, Bitcoin may not appear cheap. However, several catalysts could help push it much higher in 2024.
What is Bitcoin?
At its core, Bitcoin is digital currency -- a form of payment that is not governed or regulated by traditional banks. Although Bitcoin is little used as a medium of exchange, there is a case for it as a store of value. For this reason, some people refer to Bitcoin as digital gold.
Investing in Bitcoin is quite different from purchasing stock in a company. The cryptocurrency does not have earnings, a management team, or any real securities guidelines that it must obey. Similar to other alternative assets, the value of Bitcoin largely stems from perception driven by supply and demand. For this reason, Bitcoin's price fluctuates frequently.
Nonetheless, the price of Bitcoin has seen some new life over the past year, surging nearly 160%. And with 2024 carrying a lot of question marks, the cryptocurrency could be poised for further market-beating returns.
Bitcoin Price data by YCharts
Image Source: Getty Images
Is Bitcoin recession-proof?
For the past several quarters, economists have been sounding the alarm for a recession in 2024. However, economic indicators such as job growth, unemployment, and inflation continue to suggest that a recession may not materialize next year.
The chart below shows the real gross domestic product (GDP) growth rate for the U.S. during the past decade. Investors can see that in the latest quarter the annualized growth rate of 4.9% was well above the long-term average, and represents a slight uptick from the prior quarter. So while the economy may not fall into a recession, there are still many reasons to consider Bitcoin in 2024.
US Real GDP QoQ data by YCharts.
Where is Bitcoin headed in 2024?
One of the most obvious investment themes for 2024 is the fact that it is an election year. Although it is too early to know which candidates will land on the ballot and who will head to (or stay in) Washington in 2025, the likelihood of a volatile stock market next year could be pretty high. As candidates lobby for various legislative moves during campaign events and debates, it is natural for certain market sectors to experience more pronounced trading activity. For this reason, unless you have built a well-diversified portfolio, chances are you could experience some significant volatility next year, which leads to my second point.
Some industries have handily outperformed the broader market this year. For example, technology stocks ripped in 2023, fueled by bullish outlooks on artificial intelligence (AI). Even if you did not directly own any of the "Magnificent Seven" stocks, tech-heavy index funds like Invesco QQQ were up by more than 50% year to date -- more than double the S&P 500's gains.
Although the secular demand trends of AI could very well pour over into 2024, it's highly likely that some tech stocks are overbought right now. Investors should consider trimming certain positions and allocating some capital to asset classes that might see some renewed interest in 2024. Cryptocurrency fits this description and represents an opportunity for investors who can accept some level of speculation.
Perhaps the biggest catalyst for Bitcoin heading into 2024 is the possibility that one or more spot Bitcoin exchange-traded funds (ETFs) will launch next year. Approval of a spot ETF by the Securities and Exchange Commission (SEC) would represent an important validation of cryptocurrencies and could spark a bull run.
The last thing that could send the token's price surging next year is the looming Bitcoin halving. Following past Bitcoin halvings, in which the reward miners receive for adding to the blockchain is cut in half, the cryptocurrency has witnessed renewed buying activity and eclipsed past highs.
The combination of election-driven volatility, coupled with potential momentum from regulators and the possibility of a Bitcoin halving cycle make me bullish on the token's prospects for next year. Despite its surge in 2023, I would not be surprised if Bitcoin eclipses its record high of about $69,000 next year and moves toward six-figure territory. For these reasons, investors might want to consider a small position in Bitcoin now.
