Cryptocurrency has enjoyed a resurgence during the past year. Flagship cryptocurrency Bitcoin (BTC -2.55%) has enjoyed the ride. The price of Bitcoin is up nearly 200% in that time and is hovering near its all-time high.
The next significant price milestone would be $100,000, about 40% higher than Bitcoin's current price. Will Bitcoin reach that milestone?
It could. There are two primary immediate reasons why:
Institutional Bitcoin interest
Like any cryptocurrency, Bitcoin's price depends on supply and demand. As many know, there is a limited supply of Bitcoin, which makes demand the wild card in its price action. Institutional customers such as banks, hedge funds, and exchange-traded funds can be game-changers because they're much larger than your typical buyer. You might consider them Bitcoin whales.
Momentum began picking up at the institutional level in the final three months of 2023. According to Coinbase, a leading crypto exchange, institutional trading volume rose 92% quarter over quarter in Q4. BlackRock's iShares Bitcoin Trust has grown to nearly $15 billion and holds over 200,000 bitcoins today. It only launched in January.
The larger the institutional interest in crypto, the more the demand from that part of the market supports Bitcoin's price appreciation.
The halving is coming
Each time 210,000 new blocks are created and validated on the Bitcoin blockchain, it triggers a halving -- an event that cuts the number of Bitcoin miners earn as a reward for successfully mining a block in half. Halvings occur roughly every four years, and the next is expected to take place on or about April 17, less than a month from today.
After a halving, the rate at which new Bitcoin enters circulation as it's mined is reduced. You could think of halving as a mechanism designed to slow supply growth while (hopefully) demand grows faster. In other words, it's aimed at helping Bitcoin's price increase.
Of course, that doesn't guarantee the price will go up. However, the upcoming halving is a highly anticipated event in the crypto world, and Bitcoin investors are undoubtedly excited about the prospect of fewer new Bitcoins entering circulation.
First time? Check this out
Crypto bull markets often attract new investors. If you're still learning about Bitcoin, there is some vital information to know.
Cryptocurrencies are different from stocks. Stocks represent a piece of an underlying business that usually has revenue and profits, which can be a reference point for investors when deciding whether to buy or sell it. For example, a stock might trade at 20 times the underlying company's earnings-per-share.
There are no underlying assets in Bitcoin itself. Its market value depends on supply and demand. That heavy dependence on market sentiment is partially what has made crypto prices so volatile. Investors can be really greedy or really fearful. There's a wide range.
Why hold Bitcoin, then? The long-term reason for holding Bitcoin is the hope that it will be adopted as a mainstream financial asset over time. In other words, one can buy it in the hope that it will develop more utility in the real world. In that scenario, prices could stabilize because there is more steady demand for Bitcoin balanced against supply.
Ultimately, Bitcoin should be approached as a piece in any long-term portfolio. Nobody should put all their money in Bitcoin or other cryptocurrencies. Diversification is important. Additionally, investors should protect themselves from volatility by purchasing Bitcoin in small, regularly scheduled increments. That way, your cost basis will average out over time as prices fluctuate.
Bitcoin's long-term track record is impressive, and its future could be bright. The current uptick in institutional investor activity is promising. However, Bitcoin remains highly volatile and should be approached with the appropriate caution.
