Bitcoin (BTC -0.11%) Bulls have reason to be nervous. In just one week, the entire investment story of Bitcoin changed thanks to the spectacular crash of the cryptocurrency exchange. FTX (FTT 0.69%). On November 9, the price of Bitcoin fell below $16,000, and it briefly traded at its lowest price in nearly two years. This after Bitcoin has been trading near the $20,000 level for months. Bitcoin is still down 65% for the year.
This doesn’t seem like an overly attractive investment prospect for Bitcoin, but there are three major catalysts that could push Bitcoin higher in the coming months.
Positive signs for the economy
The first major catalyst is, of course, the bright outlook for the US economy. When the Consumer Price Index (CPI) numbers came out just days after the FTX crash, it provided an immediate boost for Bitcoin. Inflation, which was 8.2% in September, cooled down to only 7.7% in October. On the news that inflation has subsided, the price of bitcoin immediately rose from $16,500 to $17,500.
All the Federal Reserve tightening we see in 2022 is working. The hope among Bitcoin bulls is that the Fed will soon decide to stop raising interest rates so aggressively. Bitcoin investors will breathe a huge sigh of relief if the Fed gets inflation under control. If the Fed stops raising rates, the price of Bitcoin could rise to $21,344 by the end of 2022, according to traders.
A positive regulatory perspective
After the collapse of FTX, most market participants are preparing for some kind of regulatory pressure. After all, you can’t let a cryptocurrency exchange blow up overnight and do nothing about it, right? So, it is not too late for some sort of tightening of the regulatory framework for cryptocurrency.
Image source: Getty Images.
The good news here is that Bitcoin appears to be on the right side of any future regulatory actions by the US government. The SEC, the most aggressive regulator to date when it comes to cryptocurrency, said this summer that Bitcoin is the only cryptocurrency that is not a security. Any new regulatory framework that emerges this year or in 2023 will likely take a hands-off approach when it comes to Bitcoin.
Even if the SEC moves quickly to address the FTX debacle, it probably won’t touch Bitcoin directly. All postmortem analyzes of the FTX crash have found no evidence that Bitcoin played a role in the crash. This may explain why Bitcoin suffers less than other cryptocurrencies after a market selloff. Over the past seven days, Bitcoin is down a “total” of 19.69%. This may sound like a steep drop, but consider this Solana (LEFT -1.33%) — a cryptocurrency with extensive ties to FTX CEO Sam Bankman-Fried — fell 50.31% at the same time.
New flows of institutional money
The final catalyst is the continued flow of institutional money into Bitcoin. While there will inevitably be a small dip as investors recover from the FTX fiasco, the clear trend is toward more money flowing into Bitcoin from pension funds, endowments, and other institutional investors. The growing consensus among institutional investors is that cryptocurrency is a fundamentally new asset class, and that Bitcoin is a key asset for this asset class.
In fact, the collapse of FTX could make Bitcoin a more sought-after crypto asset. If investors start to rely less on altcoins, then Bitcoin may emerge as a safer haven for funds allocated to the cryptocurrency. In other words, if you’re a large pension fund manager, would you feel safer keeping your money in Bitcoin or Solana these days?
Bitcoin is a short and long term purchase
It’s more than just “taking the dip.” It’s about buying cryptocurrency with strong long-term fundamentals. At around $17,000, Bitcoin appears to be significantly undervalued. Bitcoin was trading above $21,000 a few days before the FTX collapse. This price reflects the true valuation of Bitcoin rather than the current market price, which appears to reflect much of the fear-based panic selling that has occurred over the past week.
So yes, buying Bitcoin at any price below $20,000 is a good idea. Bitcoin remains both a short-term and long-term buy.