Written by Matt Hougan, Chief Investment Officer at Bitwise
Compiled by: Luffy, Foresight News
The current market pullback appears to be a gift for long-term investors; key tailwinds could propel Bitcoin to $100,000 by the end of the year.
The cryptocurrency market is in a weird state: all short-term news is bad, and all long-term news is good. This contradiction creates a golden opportunity for long-term investors. Let me explain.
The big push behind cryptocurrencies
For long-term cryptocurrency investors, there has never been a better time than now.
The inflows into spot Bitcoin ETPs are staggering: since launching in January, spot Bitcoin ETPs have attracted $15 billion in net new assets, making them the most successful ETPs ever. And I think they are just getting started. The largest wealth management platforms like Morgan Stanley and Wells Fargo haven’t even entered the space yet. My guess is that they will enter the space later this year, potentially bringing in billions of dollars in inflows.
Bitcoin Halving: In April this year, Bitcoin experienced its quadrennial halving, which reduced the new supply by 50%. Historically, Bitcoin has performed very well in the year after each halving. Will this time be different?
Spot Ethereum ETP: The SEC has approved key documents for spot Ethereum ETPs, and the launch of Ethereum ETPs is imminent. We believe these ETPs can attract $15 billion in net inflows in the first 18 months after listing.
A huge shift in the US government's attitude towards cryptocurrencies: In recent years, Washington has been hostile to cryptocurrencies, hindering the development of the crypto industry. But in the past few months, Washington's attitude has changed dramatically. In May, 71 Democrats joined 208 Republicans in supporting a new regulatory framework for cryptocurrencies. One of the reasons for the bipartisan support? The cryptocurrency industry already has political influence thanks to one of the most powerful super PAC networks in Washington. What's more, Trump and the Republican Party have historically publicly supported cryptocurrencies, indicating its growing importance in the US election.
Fed rate cuts: The federal funds futures market is pricing in two rate cuts by the end of 2024 and four to five rate cuts over the next 12 months. Falling interest rates will see more money flow into cryptocurrencies.
Coupled with the strong growth of stablecoins, significant progress in Layer 2, the in-depth involvement of institutions such as BlackRock, etc., all this paints a picture of a bright future. In the second half of the year, the combined effect of these factors is likely to push Bitcoin to $100,000, while Ethereum will also reach a record high.
Short-term resistance
So, with all the good news, why is the price of Bitcoin still falling? The answer is: a one-time dump.
Specifically, the cryptocurrency market has been impacted by multiple short-term liquidity shocks recently. In the past two weeks, we have seen:
Mt. Gox Repays: Mt. Gox, the cryptocurrency exchange that collapsed in 2014, finally began paying creditors in early July. This is a big deal: Mt. Gox expects to repay more than $8 billion in Bitcoin to creditors in the coming months. Billions of dollars in Bitcoin may be sold immediately.
US Government Sell-Off: The US government holds more than $12 billion worth of Bitcoin that was seized from the notorious online black market Silk Road in 2013. On July 1, the U.S. Marshals Service announced that it would sell the assets on Coinbase Prime, suggesting that they could soon hit the market.
German government sells off: The German government, which has confiscated Bitcoin many times, is not to be outdone and has sold off $900 million in Bitcoin. The remaining Bitcoin may be sold soon.
Think about it, $8 billion from Mt. Gox, $12 billion from Silk Road, $2 billion from Germany… that’s a pretty big amount of Bitcoin. To make matters worse, these sales and allocations all began during the July 4 holiday week, a period of low cryptocurrency liquidity. This led to a large number of liquidations in the futures market, further pressuring prices.
Everything will pass
But remember: these are one-time dumps, and they will end.
As investors, we need to ignore incidental events when evaluating an investment; they do not represent the long-term value of the investment.
In other words, this too shall pass. The Mt. Gox repayment will pass sooner or later, and the U.S. government’s sale of Silk Road assets will also be over.
Meanwhile, the positives aren’t going away. Bitcoin ETPs aren’t going away, Ethereum will continue to attract new money, Washington’s acceptance of cryptocurrencies is accelerating, and so on.
That's why the recent pullback is a gift to long-term investors.
I think one-off sell-offs are dampening the original bullish momentum, and once the market digests these short-term liquidity shocks, the future will be bright.
