bitcoin (BTC 2.27%) bulls have reason to be nervous. In just one week, the entire investment narrative related to bitcoin seems to have changed thanks to the spectacular crash of the cryptocurrency exchange. FTX (FTT 29.33%). On November 9, the price of bitcoin fell below the $16,000 mark, and it briefly traded at its lowest price in nearly two years. This is after bitcoin has been trading around the $20,000 level for several months. Bitcoin is still down 65% in a year.
It doesn’t sound like much of an investment in bitcoin, but there are three key catalysts that could propel bitcoin higher in the coming months.
Positive Signs for the Economy
The first major catalyst, of course, is the improved outlook for the US economy. When the Consumer Price Index (CPI) data was released a few days after the FTX crash, it provided an immediate boost for bitcoin. The inflation rate, which stood at 8.2% in September, dropped to 7.7% in October. Following the news that inflation appears to be declining, the price of bitcoin immediately jumped from $16,500 to $17,500.
All the Federal Reserve tightening we saw in 2022 seems to be working. Bitcoin bulls hope the Fed decides to stop raising rates so aggressively soon. If the Fed gets inflation under control, bitcoin investors will breathe a sigh of relief. If the Fed stops raising rates, traders say, the price of bitcoin could rise to $21,344 by the end of 2022.
Positive regulatory outlook
After the collapse of FTX, most market participants are preparing for regulatory action. After all, you can’t just let a cryptocurrency exchange explode overnight and do nothing about it, right? So some tightening of the regulatory framework for cryptography will happen sooner rather than later.
The good news here is that Bitcoin seems to be on the right side of any future regulatory steps taken by the US government. The Securities and Exchange Commission, which is by far the most aggressive regulator when it comes to cryptocurrencies, said this summer that Bitcoin is the only cryptocurrency that is not a security. Any new regulatory framework that comes out this year or 2023 is likely to have a hands-off approach when it comes to bitcoin.
Even if the Securities and Exchange Commission moves quickly to address the FTX crash, it probably won’t touch Bitcoin directly. Throughout the post hoc analysis of the FTX crash, there was absolutely no indication that Bitcoin played a role in the crash. This may explain why Bitcoin seems to have suffered less than other cryptocurrencies after the market sell-off. Over the past seven days, Bitcoin has fallen “only” 19.69%. This may seem like a drastic drop, but be aware that Solana (SOL 2.83%) — a cryptocurrency with extensive ties to FTX CEO Sam Bankman-Freed — has fallen 50.31% over the same time.
New flows of institutional money
The latest catalyst is the continued influx of institutional money into Bitcoin. While there will inevitably be a slight downturn after the FTX fiasco as investors deal with the damage, the clear trend is for more money from pension funds, philanthropic funds, and other institutional investors to pour into bitcoin. A growing consensus among institutional investors is that cryptocurrency is a fundamentally new asset class, and bitcoin is the main asset for this asset class.
In fact, the collapse of FTX could make Bitcoin a more desirable crypto asset. If investors start to trust altcoins less, then Bitcoin could become an even safer haven for funds allocated to cryptocurrencies. In other words, if you are the manager of a large pension fund, do you currently feel more secure placing your money in Bitcoin or Solana?
Bitcoin is a short-term and long-term purchase
This is much more than just “buying a dip”. We are talking about buying a cryptocurrency with strong long-term fundamentals. At around $17,000, Bitcoin seems to be vastly undervalued. Just a few days before the FTX crash, Bitcoin was trading above $21,000. This price is more indicative of Bitcoin’s true valuation than the current market price, which seems to reflect much of the fear-driven panic selling that took place last week.
So yes, getting bitcoins at any price below $20,000 is a good idea. Bitcoin remains both a short-term and long-term buy.