The euphoria around the first U.S. bitcoin exchange-traded funds (ETFs) was short-lived. Just days after securing SEC approval, bitcoin plunged 10% from its highs, dragging down crypto-focused stocks with it.
But this temporary slump presents a golden buying opportunity for investors who missed out on the crypto run-up. Here’s why:
- Bitcoin remains in a long-term uptrend. Zoom out beyond the recent volatility, and bitcoin is still up over 300% in the last two years. This secular crypto bull market likely has room to run despite periodic pullbacks.
- Crypto adoption is accelerating. Mainstream usage of digital assets continues growing rapidly, with major financial institutions now embracing crypto. This trend will support prices over time.
- Inflation fears persist. With inflation at 7% in December, investors continue seeking stores of value like bitcoin to hedge rising prices. Its limited supply makes it attractive during inflationary periods.
“This is a textbook technical pullback after a parabolic advance,” said Tobi Opeyemi Amure, an analyst at Trading.Biz. “I would treat this as a gift to load up on crypto exposure at lower entry points.”
Stocks like MicroStrategy, Coinbase, and crypto miners felt the brunt of the decline:
- MicroStrategy (MSTR) fell 2.2% as its mega bitcoin hoard declined in value. But long-term investors still see its stock as a leveraged BTC play.
- Coinbase Global (COIN) dropped 6.2% on lower crypto trading volumes. Its stock should regain momentum as retail and institutional adoption increases.
- Miners like Riot Platforms (RIOT) and Marathon Digital (MARA) plunged over 5% each. Their profitability is tied to bitcoin prices and transaction fees. A recovery in crypto prices would reinvigorate miners.
The recent launch of the first U.S. spot bitcoin ETFs was expected to spur the next leg higher for bitcoin. But prices quickly reversed as traders sold the news. Still, most analysts see the ETF development as overwhelmingly positive for crypto over the longer term:
- ETFs broaden the accessibility and legitimacy of crypto for investors who previously faced barriers to purchasing digital assets directly.
- Early inflows into ETFs like IShares’ Bitcoin Trust (IBIT) and Fidelity’s Bitcoin Fund (FBTC) have topped $1 billion already, reflecting substantial pent-up demand.
- As familiarity and availability of crypto ETFs grow, mainstream adoption should accelerate, providing a tailwind for prices.
In summary, the current pullback looks like a temporary consolidation rather than the start of a crypto winter. For investors who missed out on the epic 2021 Bitcoin run-up, right now could be an opportune time to take positions:
- Bitcoin appears oversold below $42,000 and due for a bounce after shedding 10% in a week
- Crypto-related equities provide leveraged exposure to an eventual rebound in digital asset prices
- Growing real-world usage and ETF launches support crypto’s long-term upside, despite volatility
Rather than fearing the downside, embrace this chance to get in on the enduring crypto craze. Those waiting on the sidelines for an entry point may not see prices this attractive again anytime soon.
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