(Kitco News) After stabilizing above $20,000 following the summer’s wipeout, Bitcoin is looking ready for its next step as markets focus on regulation, institutional adoption, and the next halving, according to 3iQ, which is the first regulated digital asset investment fund manager in Canada.
Even though Bitcoin got caught up in the contagion risk of the DeFi space, tumbling from its record high of $60,000 posted last year down to below $18,000 this summer, the world’s largest cryptocurrency is currently trading just below $24,000. And many analysts and market participants are starting to agree that the price bottom for Bitcoin is in.
“The normal correction of any growth or risk asset is a 50% retracement. First, we saw Bitcoin move from $60k to $30k. And then we had our crypto financial crisis, which was the unwinding of the DeFi space and the lending models that people had created. And there was the selloff from $30k to below $20k. And I think we’ve seen most of that shake-out happen. We don’t see this continuing much longer,” 3iQ founder and CEO Fred Pye told Kitco News on the sidelines of the Blockchain Futurist Conference in Toronto.
In the future, the time Bitcoin will spend below $20,000 will be very limited, added 3iQ’s head of research Mark Connors.
“I can’t guarantee that it’ll never hit $20k again, but I will tell you that over the next year, the amount of time it’ll be below $20k will be less than 2.5% of the time,” Connors said.
And this is due to the reasons why Bitcoin fell in the first place. “It was the washout. It was the failed plumbing. It wasn’t the protocol. And there was a technical reason why it got driven here. Do we suggest current levels are a good entry point? 100%,” he said.
A year ago, Pye was projecting for Bitcoin to hit $100,000 in 2023 and then possibly even $1 million this decade. Pye clarified that this price estimate was based on past and future halvings.
Since then, Pye’s price outlook has not changed much. “Those drivers were based on what we call the stock-to-flow analysis, which we were quoting. Stock-to-flow ranks the scarcity of certain assets like gold and Bitcoin,” he said. “Gold grows at 4% per year at this rate. Bitcoin now grows at 2% per and in two years, it will grow at 1% per year. So the inflation rate of Bitcoin vs. gold is getting more and more attractive as a store of wealth.”
And going into the next Bitcoin halving, you’re going to see FOMO return, with people wanting to get back in to avoid missing the next rally, Pye added.
In the past, Bitcoin’s finite supply and the halving process made massive price surges possible. Bitcoin halving happens every four years, and it is when the reward for mining bitcoin transactions gets halved, which also cuts the rate at which new bitcoins enter circulation. The last bitcoin halving was in May 2020. And the next one is scheduled for May 2024.
On top of that, because of Bitcoin’s exponential growth, its price potential still gets overlooked. It was a similar story with TVs, the internet, and social media, Connors pointed out. “Can Bitcoin hit $100k? That’s a low mark with adoption and sound technology, which is the answer to the fiat debasement.”
Is Fed a problem for Bitcoin?
With markets zeroed in on the aggressive tightening path that the Federal Reserve is taking to battle inflation, Connors said that the upcoming rate hikes would have a limited impact on Bitcoin this fall and winter.
“The debt load is currently at WWII levels. When people say to raise rates like Volcker in the 1970s, the Fed can’t. Volcker had 30% debt-to-GDP ratio. He had a runway because the impact on the economy was minimal. Right now, the Fed can raise rates to 4%. But we’re not going higher than that. The next three Fed meetings are noise,” Connors noted.
Regulation and any news from Congress, the Commodity Futures Trading Commission (CFTC), and the U.S. Securities and Exchange Commission (SEC) will have a more significant impact on Bitcoin.
“The September meeting we care about is a meeting with the Cabinet. When the President’s working group says, here’s our plan on regulations so institutions can then lay the hammer down and get involved in crypto. That’s the meeting I care about,” he said.
The U.S. and Canada are on two very different regulatory pathways. Canada is behind in terms of regulation of money flows of exchanges and of custody. But Canada has won the battle regarding Bitcoin and Ether spot ETFs.
In the U.S., Connors added that it makes sense for the CFTC to have more oversight over crypto, which would look at Bitcoin and Ethereum as commodities. But he warned that it could be a knife fight for funding in Washington.
“The CFTC is also used to having 24-hour markets. They’re in a better place to monitor crypto. [But] the CFTC is a fraction of the size of the SEC, so it is going to get more funding if this happens. There it’s going to be a turf battle. It’ll be a knife fight in D.C.,” Connors described.
In 2021, 3iQ was one of the world’s first companies to launch Bitcoin and Ether ETFs in collaboration with CoinShares.
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