Bitcoin Price May Not Reach Record Highs Before Halving – Here’s Why

Is it the right time for investors to turn bullish on Bitcoin?

With a staggering 91% rally to $52,000 in just four months ending on Feb. 15, the temptation to invest in Bitcoin is high. Its current $1 trillion valuation places it among the top 10 tradable assets globally, even surpassing Warren Buffet’s Berkshire Hathaway, which has a market capitalization of $875 billion.

But can Bitcoin’s current valuation of $1.35 trillion be justified?

Some argue that Bitcoin has already proven its worth in November 2021 when it reached an all-time high of $69,000. And with the recent approval of spot Bitcoin ETFs in the United States and the resolution of potential risks, such as Binance’s legal battle with regulators and FTX exchange’s bankruptcy procedures, it seems more likely for Bitcoin to repeat this feat.

Reaching $70,000 from its current level of $52,000 would mean a $350 billion increase in BTC’s capitalization, placing it ahead of silver and the United Kingdom’s pound, including bank deposits and currency bills. And with the growing interest in cryptocurrencies, such as “crypto global” and “federal crypto,” and the buzz around companies like “crypto.com stock” and “apple crypto,” it’s no surprise that Bitcoin’s popularity and value continue to rise.

Low interest rates and rising inflation drove Bitcoin to its all-time high

In November 2021, traditional finance yields were under 0.50%, prompting investors to turn to riskier assets for higher returns. This was fueled by a surge in U.S. inflation, measured by the Consumer Price Index (CPI), which reached 6.8% year-over-year, the highest since June 1982. As a result, scarce assets became highly sought after while stock market investors were concerned about supply chain disruptions and the impact of COVID-19 on the economy.

The latest CPI data for January 2024 shows a 3.1% increase year-over-year, still above the U.S. Federal Reserve’s target but relatively contained. It would be simplistic to assume that current inflation poses the same risk as it did when Bitcoin reached its all-time high. Recent data indicates that investors are anticipating a 10.9% growth in earnings for S&P 500 companies, a significant increase from 3.8% in 2023. As a result, there is little incentive for investors to seek alternative assets, as was the case in late 2021.

The Rise of Spot ETFs: A Turning Point for Bitcoin as a Mature Asset Class

Since its launch on Jan. 11, the spot Bitcoin ETF market has seen an impressive influx of $4 billion in the U.S., now totaling over $35 billion in assets. This amounts to 3.5% of Bitcoin’s market capitalization, a significant increase compared to the collective holdings of gold ETFs, which only make up 3% of its market capitalization when excluding jewelry and medals. This suggests that Bitcoin, with its growing ETF market, is becoming a more mature asset class than it was just a few months ago.

One of the main selling points for Bitcoin is its institutional adoption, yet its price still remains 25% below its all-time high of $69,000. Even when adjusted for inflation or the aggregate fiat money supply, it has not reached its bullish estimates of $100,000 or higher.

However, we can take inspiration from the fact that in November 2021, a $3 trillion market capitalization company seemed like a distant dream, but it has now become a reality for both Microsoft and Apple. As the dollar continues to depreciate, there is still hope for Bitcoin to surpass $70,000, but it is unlikely to happen before the halving in April.