Bitcoin's (BTC -2.20%) price hit a new all-time high of nearly $73,800 on March 14. It's pulled back to about $67,800 as of this writing, but it's still up more than 60% this year. That rally suggests the "crypto winter" is finally ending.
Some investors will be wary of buying Bitcoin after those massive gains. However, I believe it's smart to invest $10,000 in the top cryptocurrency -- either through a direct purchase or through an exchange-traded fund (ETF) -- for four simple reasons.
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1. Declining interest rates
Bitcoin and many other cryptocurrencies tumbled in 2022 as rising rates drove investors away from speculative investments. However, the Federal Reserve is widely expected to cut those rates two to three times this year as inflation cools off.
As interest rates decline, investors will likely shift back toward higher-growth plays like cryptocurrencies. That risk-on rotation should drive Bitcoin's price even higher this year.
2. The growing popularity of Bitcoin ETFs
The U.S. Securities and Exchange Commission (SEC) approved the market's first 11 spot price Bitcoin ETFs this January. That made it much easier to invest in Bitcoin -- which was previously accessible only through direct purchases on cryptocurrency exchanges or ETFs pinned to Bitcoin trusts and future contracts.
The six largest spot price Bitcoin ETFs now hold a combined $60.8 billion in assets under management (AUM) -- and that figure could keep climbing as retail and institutional investors add more shares to their portfolios. Ark Invest's Cathie Wood believes that if institutional investors allocate just 5% of their portfolios to Bitcoin, its price will surge to $1.5 million by 2027. That's a whopping gain of more than 2,100% from its current price.
3. Ethereum's regulatory troubles
The price of Ether (ETH -0.62%), the main token of the Ethereum network, also rose over 50% this year as the macro headwinds for the crypto market weakened. Many investors hoped the SEC would approve the first spot price Ether ETFs.
However, the SEC recently requested more information from the Ethereum Foundation in Switzerland and is reportedly pushing Ether and other Ethereum tokens to be reclassified as securities -- which would potentially make the cryptocurrency subject to tighter government regulations than commodities. The SEC also reiterated its view that Bitcoin is the only cryptocurrency that can be classified as a commodity and tethered to a spot price ETF.
The SEC likely believes the Ethereum network's shift in September 2022 from the proof-of-work (PoW) model used by Bitcoin to a more energy-efficient proof-of-stake (PoS) model created a fundamental difference between the two cryptocurrencies. With the PoW model, miners directly minted the new cryptocurrencies. But with the PoS model, they are rewarded for locking up coins -- which makes the currencies more like securities than like commodities. The SEC's position is a big setback for Ether, but it reinforces the bullish thesis that Bitcoin is a stronger long-term play on the crypto market than Ethereum-based tokens.
4. The next Bitcoin halving
Every four years, the rewards for mining Bitcoin are cut in half. That "halving" usually generates fierce headwinds for miners like Marathon Digital, but it will also likely boost Bitcoin's market price by reducing its available supply.
The last halving occurred on May 11, 2020, back when one Bitcoin was worth only $8,800. The next halving is expected to occur this April. Some of the anticipation is likely already baked into Bitcoin's rising price, but it could soar even higher after the halving -- especially if it coincides with declining interest rates and rising institutional purchases.
Bitcoin could still head much higher this year
You shouldn't invest $10,000 in Bitcoin if you can't stomach the near-term volatility. This is still a cryptocurrency that could be easily cut in half before it doubles. But if you can afford to stash away that $10,000 for at least a few years, it makes sense to buy some Bitcoin today as the ETF approvals, halving, and other catalysts draw in more investors.
