The Bitcoin Breakout Is Here: Next Stop $50k (BTC-USD)

While much of the market has been fixated on record volatility in bonds and renewed weakness in stocks, Bitcoin (BTC-USD) has staged a spectacular rally in recent weeks and is now up nearly 100% this year.

This current momentum with BTC once again trading above $33,000 has evolved despite U.S. Dollar strength, rising interest rates, and the broader risk aversion which would otherwise be seen as bearish headwinds.

In our view, the setup right now is the most bullish we’ve seen since we covered the “gold standard of cryptocurrencies” back in January when BTC climbed above $20,000. We expect more upside with a sense that this latest breakout is just getting started. The following points highlight what we believe to be the key catalysts that can drive the next leg higher into 2024.

• Renewed bullish momentum.
• Implications of looming approval of a first-of-its-kind spot market ETF.
• Growing recognition of Bitcoin as a legitimate alternative asset.
• Technical breakout to the highest level since May 2022.
• Reversal of Dollar strength and pullback in rates as a new macro tailwind.

The Upcoming Bitcoin ETF

A large part of this latest Bitcoin optimism centers on the expectation of a looming approval for a spot market bitcoin exchange-traded fund. To be clear, while no final announcement has been made, all indicators are pointing that the SEC will finally greenlight what has long been at the top of Bitcoin enthusiasts’ bucket list.

The latest development is an industry listing for the “BlackRock iShares Bitcoin Trust with a pending ticker symbol of IBTC as an important step before trading officially begins. Other ETF sponsors include VanEck, WisdomTree, Fidelity, ARK Invest, Bitwise, and Invesco all have similar applications.

The expectation is that the SEC may move forward with a handful of the applications at the same time to avoid the appearance of favoring one particular fund while giving investors more options.

The Importance of a BTC ETF

Access to owning Bitcoin has never been a problem including countless exchanges like Coinbase Global, Inc. (COIN) and even through larger FinTech platforms like Block, Inc. (SQ) or PayPal Holdings, Inc. (PYPL). Bitcoin futures contracts have been actively traded since 2017.

Numerous existing funds do just fine at tracking Bitcoin like the ProShares Bitcoin Strategy ETF (BITO), with exposure to BTC futures, and Grayscale Bitcoin Trust (OTC:GBTC) with its closed-end fund model.

That being said, there are key aspects of an exchange-traded fund (ETF) that make it different. The first part is the concept of a regulated custodian responsible for holding the underlying asset.

In contrast to the futures-based strategy, a spot market ETF will hold underlying Bitcoins corresponding to the asset value of the fund. This means that investor demand for the ETFs will translate directly into the sponsor building and underlying positions.

This also differs from existing closed-end funds like GBTC which holds a certain amount of Bitcoin while the asset value could trade at a large premium or discount to the underlying holdings.

The result here offers key advantages to the ETF model.

• Increased transparency with daily holdings information.
• Enhanced investor protections through the regulatory framework.
• Greater liquidity share creation process.
• Flexibility to be used in a broader range of retirement accounts.

In our view, the importance of a spot market ETF in the U.S. is that it works as a proverbial stamp of approval by the market’s main regulator that Bitcoin is a credible investment option.

For all the naysayers who have been predicting the demise of Bitcoin at nearly every turn over the past decade, the potential availability of an ETF confirms that this market segment is here to stay.

A Legitimate Alternative Asset

What we like about Bitcoin is the idea that it can mean several different things to different people, each with a viable bullish interpretation. At one extreme, Bitcoin can be seen as a “monetary revolution” capable of replacing all other currencies as a viable payment system and medium of exchange.

For us, we take a more grounded approach to recognize Bitcoin as the benchmark for all other cryptocurrencies, holding its place as digital gold. In many ways, the aspect that the supply of Bitcoin is limited to 21 million units within the blockchain source code makes it even better than metal as a finite resource.

What we know is that Bitcoin has performed well as a store of value particularly in the environment of macro uncertainty and the apparent failure of the centralized monetary systems. The outlook for higher prices is based on the understanding that it’s being traded against an unlimited supply of fiat currencies.

Battle-tested through the market events over the past several years, Bitcoin has earned its place as a unique and distinct asset class alongside traditional asset classes like equities, bonds, and cash along with alternative asset classes covering commodities, precious metals, art, real estate, etc.

This upcoming introduction of a spot market ETF forces investors who may have been on the sidelines to give Bitcoin a second look. A move by individual and institutional investors alike to allocate just a fraction of investable capital into Bitcoin as part of a diversified portfolio strategy could be a major tailwind for prices.

Research from “ARK Invest” highlights that Bitcoin, within the broader category of crypto assets, remains relatively tiny in terms of market capitalization next to other asset classes. The latest data suggests that Bitcoin’s total value is around $700 billion, which is just a fraction of the $12 trillion value of Gold.

The group concludes that crypto assets could represent a $25 trillion market value by 2030 including the potential for innovations like smart contracts and other blockchain technologies. Using the addressable market of various use cases for Bitcoin between corporate balance sheet holdings, allocations into investment channels, and gold’s market cap as a reference point; Ark believes Bitcoin’s price can approach $700k by 2030 as its base case.

What’s Next For BTC?

It’s clear to us that the market is trading higher in a sort of anticipation of the launch of a Bitcoin ETF. Going back to the current market value of Bitcoin around $700 billion, the potential that an ETF quickly amasses several billion dollars in assets under management would be impressive but otherwise represent only a marginal direct impact on the total Bitcoin price.

At the same time, we believe it would be a mistake to assume this rally will just unravel when the final approval goes through. What we believe is happening is a bigger move signaling the underlying strength of Bitcoin within its long-term potential.

In this case, Bitcoin has shined as a store of value when comparatively “nothing” appears safe in the context of the current macro volatility. Even with cash offering +5% returns, the appreciation of Bitcoin implies the market is assigning a higher premium eyeing its role outside the traditional monetary system.

So while Bitcoin has rallied in 2023 alongside U.S. Dollar strength and rising bond yields, we believe a reversal in both those trends could set the stage for the next leg higher in Bitcoin as a new catalyst. This would be driven as real rates reverse lower, possibly as a result of inflation expectations trending lower confirming a view that the Fed is done with rate hikes.

BTC Price Target 2024

We’re very bullish on Bitcoin but plan on taking it one step at a time. Getting back above $33k as an 18-month high is an important milestone and we see $50k as the next major price target into 2024. Considering that the 2022 low was a market capitulation, we don’t see much in terms of technical resistance on the upside in the near term.

In terms of risks, some unforeseen setbacks where a Bitcoin ETF does not get approved or some other regulatory roadblock would likely add to volatility and open the door for a deeper selloff. As long as BTC holds the $30k level as a key area of psychological support, the bulls will stay in control.