Since Bitcoin (BTC +0.01%) just touched $50,000, it undoubtedly feels like multiyear holders or "HODL-ers," in crypto lingo, are all winners. However, depending on one's time frame, the recent Bitcoin mini-rally may only present an opportunity to get back to breakeven.
Still, it's exhilarating to witness Bitcoin leaving the crypto winter behind and gaining favor from the likes of BlackRock and Fidelity. Even with the tailwind of institutional adoption, however, Bitcoin's future remains unknown and it's up to investors to figure out whether this is the end of the Bitcoin rally or just the beginning.
All you had to do was nothing
Three years ago, Bitcoin wobbled wildly but its average price was around $50,000. Surely, it must have felt as if the sky was the limit.
CRYPTO: BTC
Key Data Points
Bitcoin did head toward the sky and even hit $69,000 for a hot minute in 2021, but that was the peak of a melt-up that wasn't meant to last. The end of the Federal Reserve's easy-money policy heralded a painful decline that would bring Bitcoin down to the $16,000 area by the end of 2022.
To survive this crypto collapse, all you had to do was sit on your hands and let Bitcoin go wherever it needed to. Fast-forward to mid-February, and Bitcoin just revisited $50,000 for a volatile round trip that would have turned $1,000 into, well, $1,000.
While that may have been a waste of three years, at least you'd have the upward price momentum on your side now, plus the excitement of seeing Bitcoin in the financial headlines on a daily basis.
Much of the chatter is about the Bitcoin halving, which is set to take place in April. It's been argued that prior halving events have led to Bitcoin price rallies, but the sample size is small since this event only occurs roughly once every four years.
It's also been argued that the next halving could lead to a brief Bitcoin price decline as the reward miners receive for their efforts is cut in half, leading to a shakeout in the mining industry. Perhaps a greater concern is that the market is highly efficient, so trying to leapfrog other Bitcoin traders by front-running the halving event seems futile.
Bitcoin, gold, and the "ETF effect"
It doesn't take much digging to uncover the catalyst for Bitcoin's recent rally to $50,000. Months before the Securities and Exchange Commission (SEC) finally relented, the mere hope of an approved spot Bitcoin exchange-traded fund (ETF) prompted a buying spree.
If there was any post-ETF "buy the rumor, sell the news" event for Bitcoin, it was practically imperceptible. The inflows are still flowing in, with CryptoQuant Chief Executive Officer Ki Young Ju estimating that the "Bitcoin market has seen $9.5B in spot ETF inflows per month, potentially boosting the realized cap by $114B yearly."
If gold's a good guide, then the ETF effect could last for years, not just weeks or months. Not to assume a cause-effect relationship here, but gold rallied more than 250% in the seven years after the launch of the first gold ETF in November 2004.
It would be hasty to conclude that the ETF effect will catalyze Bitcoin to the tune of 250% over the next seven years. However, it's also hard to imagine that the inflow of retail and institutional capital into the crypto will just stop in early 2024.
There may even be a shift of capital if, as Ark Invest CEO Cathie Wood posited, there's a substitution from gold into Bitcoin underway. Presumably referring to the new spot Bitcoin ETFs, Ark further suggested that the gold-to-Bitcoin capital migration "is going to continue now that there is a much easier way...to access Bitcoin."
There may be merit to this idea, though I suspect Wood underestimates the loyalty of gold investors. Nonetheless, the point is duly noted and Bitcoin's role as an inflation hedge can't simply be dismissed. Although the halving's impact is uncertain and Bitcoin might wobble around $50,000 in the short term, Bitcoin's surprisingly enduring appeal should ensure -- or at least, make it more probable -- that the next three years will be more profitable than the last.
