Why Bitcoin price is unlikely to hit a new all-time high before halving

For investors, the bitcoin price rally is alluring, especially after a 91% rise to $52,000 in just four months to Feb. 15. Bitcoin’s current $1 trillion valuation puts it among the world’s top 10 tradable assets, even ahead of Warren Buffett’s Berkshire Hathaway, which has a market value of $875 billion.

The world's largest tradable asset by market capitalization in the United States. Source: 8marketcap

Bitcoin would need to rise an additional 34.5% from its current $52,000 level to $70,000, which would mean an increase of $350 billion in BTC’s market cap. Such a move would put the cryptocurrency ahead of silver and the British pound in the rankings, including bank deposits and monetary notes. The key question is whether current conditions support a $1.35 trillion valuation for Bitcoin.

One could argue that Bitcoin cleared these hurdles when it hit an all-time high of $69,000 in November 2021. A repeat of that feat now seems more likely given the approval of a spot Bitcoin ETF in the U.S. and the resolution of some risks, such as Binance’s court battle with regulators and FTX exchange bankruptcy proceedings.

Low interest rates and soaring inflation drive Bitcoin to new all-time highs

In November 2021, traditional financial fixed income yields were below 0.50%, which led investors to seek risky assets with higher yields. US inflation, as measured by the Consumer Price Index (CPI), also surged to 6.8% year-on-year in November 2021, the highest level since June 1982. The situation at the time strongly favored scarce assets, while stock market investors were concerned about global supply chain disruptions and the pandemic affecting economic activity.

US CPI year-on-year inflation (left, purple) and Bitcoin. Source: TradingView

The latest CPI inflation data for January 2024 showed a year-on-year increase of 3.1%, still higher than the Fed's expectations, but by a modest amount. It would be naive to assume that current inflation risks are comparable to when Bitcoin reached its all-time high. Data shows that investors expect earnings growth for S&P 500 companies to be 10.9%, up from 3.8% in 2023. Therefore, compared to the end of 2021, investors have little incentive to seek alternative assets.

Spot ETFs will transform Bitcoin into a mature asset class

Since launching on January 11, the spot Bitcoin ETF industry has recorded an impressive $4 billion in net inflows in the U.S., with assets exceeding $35 billion, representing 3.5% of Bitcoin's market cap. In comparison, total gold ETF holdings are $210 billion, equivalent to 3% of its market cap if the approximately 50% devoted to jewelry and medals is excluded. This does not mean that Bitcoin ETFs are close to their limits, but rather a rough indication that the asset class is more mature than it was in November 2021.

One of Bitcoin’s key selling points is the influx of institutional money. Yet its price remains 25% below its all-time high of $69,000, even lower when adjusted for inflation or total fiat money supply.

Bitcoin adoption has increased, but the optimistic forecasts of a price of $100,000 or more have not yet been realized. On the bright side, a $3 trillion company in November 2021 is still a distant dream, but for Microsoft and Apple, it is already a reality. Therefore, as long as the dollar continues to depreciate, Bitcoin has the potential to soar above $70,000, but this is unlikely to happen before the halving in April.