Should You Buy Bitcoin While It’s Still Under $20,000?

Bitcoin (BTC -0.08%) bulls have reason to be nervous. In just one week, the entire investment narrative around Bitcoin seems to have changed, thanks to the spectacular crash of cryptocurrency exchanges FTX (FTT 20.88%). On November 9, the price of Bitcoin fell below $16,000, briefly trading at its lowest price in nearly two years. This after Bitcoin had been trading near the $20,000 level for several months. For the year, Bitcoin is still down 65%.

That doesn’t seem to paint an overly attractive investment outlook for Bitcoin, but there are three key catalysts that could move Bitcoin higher in the coming months.

Positive signs for the economy

The first major catalyst is, of course, bright prospects for the US economy. When the Consumer Price Index (CPI) numbers came out just days after the FTX collapse, they provided an instant boost for Bitcoin. The inflation rate, which had been 8.2% in September, cooled to just 7.7% in October. On the news that inflation appears to be subsiding, the price of Bitcoin immediately rose from $16,500 to $17,500.

All of the Federal Reserve tightening we’ve seen in 2022 appears to be working. The hope among Bitcoin bulls is that the Fed will soon decide to stop raising interest rates so aggressively. If the Fed gets inflation under control, Bitcoin investors will breathe a sigh of relief. If the Fed stops raising interest rates, traders say, the price of Bitcoin could go as high as $21,344 by the end of 2022.

Positive regulatory outlook

In the wake of the FTX meltdown, most market players are preparing for some sort of regulatory crackdown. After all, you can’t just let a cryptocurrency exchange implode overnight and do nothing about it, right? So some kind of tightening of the regulatory framework for crypto is coming sooner rather than later.

Image source: Getty Images.

The good news here is that Bitcoin appears to be on the right side of any future regulatory moves made by the US government. The SEC, which has been by far the most aggressive regulator when it comes to crypto, 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 most likely take a hands-off approach when it comes to Bitcoin.

Even if the SEC moves quickly to address the FTX meltdown, it likely won’t touch Bitcoin directly. In all the postmortem analysis of the FTX meltdown, there has been absolutely no implication that Bitcoin played a role in the collapse. That may explain why Bitcoin seems to have suffered less than other cryptos in the wake of the market selloff. Over the past seven days, Bitcoin is down “only” 19.69%. That might sound like a steep drop, but think about it Solana (SUN 1.25%) — a crypto with extensive links to FTX CEO Sam Bankman-Fried — is down 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 slight slowdown in the wake of the FTX fiasco as investors sort out the damage, the clear trend is towards more money from pension funds, endowments and other institutional investors pouring into Bitcoin. The growing consensus among institutional investors is that crypto is a fundamentally new asset class and that Bitcoin is the premier asset for that asset class.

In fact, the FTX collapse may actually make Bitcoin a more desirable crypto asset. If investors start to rely less on altcoins, Bitcoin could appear even more of a safe haven for funds allocated to crypto. In other words, if you are a large pension manager, would you feel safer parking your money in Bitcoin or in Solana these days?

Bitcoin is a short-term and long-term purchase

This is about much more than just “buying dip”. This is about buying a cryptocurrency with strong long-term fundamentals. At a price of around $17,000, Bitcoin appears to be significantly undervalued. Just days before the FTX collapse, Bitcoin was trading above $21,000. This price is more indicative of Bitcoin’s true valuation than today’s market price, which appears to reflect much of the fear-driven panic selling that occurred over the past week.

So, yes, getting Bitcoin at any price below $20,000 is a good idea. Bitcoin remains both a short-term and a long-term purchase.