Crypto Prices Will Surge After the Sell-Off, Seize Your Chance to Buy Now

The cryptocurrency market is currently in turmoil. Bitcoin (CRYPTO: BTC), which started the year with a 73% gain, has seen a 21% price drop in five months. Ethereum (CRYPTO: ETH)’s volatility is a bit wilder, with a 77% peak gain followed by a 34% drop. Solana (CRYPTO: SOL) doubled at its peak, then fell 32%.

Crypto investors are on edge right now. Bitcoin was supposed to soar thanks to the one-two punch of spot Bitcoin ETF approvals and the fourth halving of mining rewards. Ethereum was also expected to spring for big gains with a game-changing technology update two summers ago. And Solana bounced back strongly from the currency’s previous confidence-draining close to the FTX crash last year. None of these bullish stories are playing out, so leading crypto names are falling instead.

But I’m here to tell you that better times are on the way. The Bitcoin halving upside is a slow-burning wick, but the market price impacts tend to be jaw-dropping when the time is right.

So I see a big buying opportunity in the current decline in cryptocurrency prices. Let me quickly explain my logic.

Bitcoin Foundation

The next boom in the highly cyclical crypto market begins and ends with Bitcoin’s halving cycle. This four-year rotation of diminishing rewards for crypto mining is a key part of Bitcoin’s economic model, as it ensures lower inflation over time. Bitcoin currently has an annual inflation rate of 0.84%, down from 1.7% a year ago and 3.8% in 2019.

By comparison, global reserves of physical gold are growing at a 3% annual rate. That’s an unusually high increase due to record gold mining and very high recycling rates, all inspired by high gold prices. Still, Bitcoin’s inflation is now well below gold’s long-term average rate of around 1.8%.

In other words, Bitcoin’s scarcity on the supply side appears to be more stable over the long term than owning physical gold bars. At the same time, the sudden availability of exchange-traded funds (ETFs) based on Bitcoin prices has opened the door for large-scale institutional investors to take a direct interest in the crypto market. With this combination in place, the current halving cycle could be even more impressive than the last one, when the coin’s price rose 579% in the 52 weeks following this reward adjustment.

But the rising gains didn’t start right away. Roughly four months after the May 2020 halving, Bitcoin has failed to keep up with the S&P 500 (SNPINDEX: ^GSPC), which has recorded a 22% gain.

The story continues

Instead, the crypto chart began to pull back in mid-October. This was when major banks started to take Bitcoin seriously. Financially dubious mining operations filed for bankruptcy amid lower rewards and ongoing operating costs. Weaker hands folded, freeing up their resources to be bought by stronger competitors in bankruptcy auctions. Bitcoin had gained 124% post-halving by the end of November, roughly six months after the adjustment.

This drama occurred during a year of coronavirus lockdowns and unpredictable economic volatility, a backdrop that likely contributed to Bitcoin’s wild price swings that continued until a price peak occurred in November 2021.

You know the drill — past performance is no guarantee of future results, and every market cycle is different. Yet the same economic forces are at work again, and Bitcoin transactions are powered by miners. If they can’t afford to stay in business, or if they abandon their Bitcoin mining operations in favor of a different business model, transactions will become slower, less secure, and more expensive for those trying to use the cryptocurrency. So the whole system only works if Bitcoin prices increase over time.

Long story short, Bitcoin should see strong price gains this halving cycle as well, likely starting about six months after the last halving. My analysis suggests that the recent price drop makes Bitcoin a better buy. If you’ve never touched a cryptocurrency with a ten-foot pole, now might be a great time to start with a modest investment in the iShares Bitcoin ETF (NASDAQ:IBIT) or Bitwise Bitcoin ETF Trust (NYSEMKT:BITB). You don’t even need to open a crypto trading account, as spot Bitcoin ETFs are available through most stockbrokers.

What about smaller crypto names?

When Bitcoin makes a big move, the crypto market as a whole tends to follow suit. The correlation between Bitcoin prices and the S&P 500 index is quite weak, but the digital currency moves almost in time with Ethereum and Solana. Bitcoin is the flagship of the crypto fleet, and many smaller crypto projects rely on Bitcoin for financial stability.

On top of that, leading altcoins like Solana and Ethereum come with their own price-boosting qualities. Ethereum is only partially complete in its transformation into a more agile, faster, and less energy-intensive global computing platform. Solana is still struggling with the fallout from the FTX crisis, carving out a larger slice of the decentralized application space. I would be shocked if these healthy cryptocurrencies fail to keep up with Bitcoin’s near-term gains, and they could even outpace their larger cousins ​​in this four-year halving cycle.

Granted, Bitcoin is a more mature digital asset today, and it’s probably best to keep these investment bites on the smaller side. And remember, crypto should make up a fairly small slice of a diversified investment portfolio. For what it’s worth, my direct and indirect exposure to crypto amounts to less than 5% of my stock portfolio, and even less if you include things like real estate in the calculation.

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Anders Bylund has positions in Bitcoin, Bitwise Bitcoin ETF Trust, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.

The post Prediction: Crypto Prices Will Rise After the Sell-Off, Grab Your Buy Now was first published by The Motley Fool