Bitcoin (BTC +4.42%) has been surging in price in recent months. After coming off a strong year in 2023 where its value jumped by 154%, the digital currency has been building off those gains in the early part of 2024 as well. On Monday, it hit a new 52-week high of more than $47,000.
As well as Bitcoin has been performing of late, its valuation can still go even higher, and crypto stocks could also go along for the ride. Here are two reasons why it could be a spectacular year for Bitcoin and crypto stocks in general.
CRYPTO: BTC
Key Data Points
A spot bitcoin exchange-traded fund could draw more investors into crypto
The approval of a spot Bitcoin exchange-traded fund (ETF) may happen as early as this week.
This is important because while people have been able to invest in crypto using digital wallets and through other funds that utilize derivatives, a spot Bitcoin ETF would actually hold Bitcoin. That means it would give investors a vehicle to invest in that more accurately tracks the true price of Bitcoin. It would be the next best thing to actually buying the cryptocurrency itself. There wouldn't be a need to rely on derivative Bitcoin ETFs or to have a digital wallet.
Making it easier to invest in Bitcoin may attract a wider pool of investors. It's similar to how a stock can reach more investors by trading on a major exchange such as the NYSE rather than only being available on an over-the-counter (OTC) exchange. While you can, of course, buy OTC stocks, some people aren't comfortable with doing so, and larger investors may avoid them as a matter of policy.
A spot Bitcoin ETF's approval could lend some credibility to crypto, and make people more comfortable investing in it. And more people putting money into Bitcoin could be a catalyst to send its price higher.
Bitcoin halving is also expected to happen this year
Another upcoming catalyst for Bitcoin in 2024 is its next halving event. These take place every four years or so, and the last one occurred in 2020. When a halving happens, the rewards that miners receive for validating transactions on the blockchain (rewards that are distributed in newly mined Bitcoin) are cut in half. This limits the rate of growth of the Bitcoin supply.
In 2012, 2016, and 2020, the price of Bitcoin rose after halving events, and the same could happen this year as well. Halving is an important feature of Bitcoin as it ensures there is sufficient scarcity. The maximum number of Bitcoin tokens that can ever exist is 21 million, and more than 19 million have already been mined thus far.
While the eventual supply cap remains the same, a halving event helps to reinforce and remind investors of that built-in scarcity. That can attract more investors to buy Bitcoin, especially for new investors looking to buy crypto and who may otherwise be considering other digital currencies that don't have that same scarcity.
Why crypto stocks can benefit
There's an undeniable connection between the prices of crypto stocks and the price of Bitcoin. If Bitcoin rises in value, crypto stocks can benefit as well. While a halving event has a negative effect on miners as it means they will get fewer tokens for mining crypto, larger mining companies can benefit as the reduced rewards could push out competitors that can't afford to continue to mine at a lower rate of return. And the impact of the halving on rewards in terms of token volume may also be offset by a higher price for Bitcoin.
There are also other crypto stocks besides mining stocks that can do well, such as Coinbase Global, which operates a leading cryptocurrency exchange platform. Since the start of last year, it has performed better than Bitcoin by a large margin, admittedly following a larger drop in late 2021 and 2022.
Bitcoin Price data by YCharts.
While the halving might be a mixed blessing for miners, overall, the approval of a spot Bitcoin ETF should favor gains in the prices of both crypto stocks and digital currencies this year.
Is now the time to invest in Bitcoin and crypto stocks?
There's a lot of excitement around crypto right now, but investors should remember there's always lots of risk as well. Bitcoin is a speculative asset, and while it could have a great year, as could crypto stocks, there could also be significant volatility ahead for these types of investments.
If you're comfortable taking on that risk, then there's definitely still time to invest in crypto. But if you're risk averse, even the approval of a spot Bitcoin ETF might not be enough to make the crypto a safe enough investment for your portfolio.
While there's plenty of upside potential left in crypto, there's also tons of risk as well. Before you decide to invest, you should consider whether you are comfortable with the risk and the possibility that you'll incur significant losses along the way.
