Right now, Bitcoin (BTC +0.96%) looks unstoppable. It's up about 20% during the past week, and nearly 50% for the year. At a price of about $62,000, Bitcoin is remarkably close to hitting its all-time high of $69,000.
So is now the time to go all in on Bitcoin, as much of Wall Street seems to be doing right now? Or are there better buys out there right now? Let's take a closer look.
The case for buying Bitcoin
Bitcoin's remarkable run this year seems to be driven primarily by one key catalyst: the introduction of new spot Bitcoin exchange-traded funds (ETFs) in January. These have been extraordinarily successful by just about any metric that you want to use. The net inflows into the most popular spot Bitcoin ETFs have been truly astounding.
For example, take the new iShares Bitcoin Trust (IBIT +0.99%) from BlackRock. In just over one month, the fund has gone from holding zero Bitcoin to holding 100,000 coins. Investor inflows are coming in at $500 million per day. The iShares Bitcoin Trust ETF now has almost $7 billion in assets under management, and the new inflows show no signs of stopping.
And it's not just the BlackRock Bitcoin ETF. There are two other spot Bitcoin ETFs with more than $1 billion in assets under management. Given all of this buying momentum, Bitcoin still looks like a screaming buy. If net ETF inflows begin to fall off, then that might be a warning signal that the Bitcoin rally is starting to lose momentum. But that doesn't seem to be the case right now. In fact, if anything, institutions appear to be ramping up their allocations to Bitcoin.
Image source: Getty Images.
Moreover, there's the upcoming Bitcoin halving in April to consider. These halving events, in which the rate of new Bitcoin production is cut by one-half, occur only once every four years and are highly anticipated by the crypto market. Historically, they have been catalysts for tremendous Bitcoin rallies.
In fact, in three previous Bitcoin halving cycles (2012, 2016, and 2020), the price of Bitcoin has soared to a new all-time high. Given that the halving is less than two months away, and we're already close to the $69,000 price level, it almost seems like a foregone conclusion that Bitcoin is going to hit a new all-time high sometime before the start of summer.
The case for not buying Bitcoin
While the general case for buying Bitcoin looks good, there are some obvious warning signals to consider. One of these is the Fear & Greed Index, which is now flashing strong warning signs. It is now at its highest levels since Bitcoin hit its all-time high in November 2021. Long story short, investors are becoming greedy again, much as they were in the last bull market cycle. They are buying Bitcoin hand over fist. The fear of missing out (FOMO) is making the average investor irrational and too focused on short-term gains.
And that leads to the next observation -- it's quite likely that Bitcoin could experience one final correction before hitting a new all-time high. Crypto traders like to point out that Bitcoin never hits an all-time high before the start of a halving cycle. It always occurs after the halving event, and it usually takes anywhere from 12 to 18 months. So some are becoming very uneasy about the prospect of Bitcoin peaking too early. Bitcoin wasn't supposed to hit a new all-time high until after April!
CRYPTO: BTC
Key Data Points
And that's where the inherent volatility of Bitcoin should be cause for concern. Yes, Bitcoin can go up 10% in a single day. But it can also go down 10% in a single day. And while Bitcoin is up 50% this year, and 150% in 2023, it was down 65% in 2022. Granted, with the arrival of so much new institutional money, the volatility of Bitcoin could be declining. But there is still risk that you could wake up after a very nice night of sleep only to find out that your Bitcoin nest egg has shrunk considerably.
The long-term outlook for Bitcoin
Ultimately, the decision of whether to buy Bitcoin should not be based on short-term market fluctuations. Tracking the day-to-day volatility of Bitcoin can be overwhelming. Only buy Bitcoin if you feel confident about its long-term prospects as an entirely new asset class that belongs in your portfolio for both upside and diversification purposes.
Right now, there is simply no other cryptocurrency that I'm as confident about buying and holding for the long term. I'm bullish on Bitcoin, and fully expect it to smash through its all-time high of $69,000 on the path to $100,000 before the end of the year.
