As we move towards the final days of summer, we could be on the verge of a breakout Bitcoin (BTC -1.36%). On August 14, Bitcoin briefly traded above $25,000 for the first time since June. Understandably, this has gotten bitcoin bulls excited, as all the talk of “buy the dip” all summer looks like it’s actually working. After almost two months of testing the $20,000 resistance level, it now looks like Bitcoin could be ready for its next big test: $25,000.
So should you buy Bitcoin for $25,000? There are two important factors to consider here. One is the general psychology of the market. The other is the presence of key catalysts that could be in store for sustained, long-term growth in bitcoin price. Let’s take a closer look at these two key factors.
The psychology of the market
Much more than stock markets, crypto markets are based on a mixture of gut feelings, emotions and instincts. Sometimes you can just “feel” the market going up. Put all of this together and you have what the British economist John Maynard Keynes famously called “animal spirits.” It was his way of explaining how markets bobbed up and down in uncertain times. It may be tempting to describe the markets in a rational, data-driven way, but when it comes down to it, human emotions count. And right now, bull animal spirits are beginning to reappear after briefly hibernating during what has been called “crypto winter” for the past few months.
Image source: Getty Images.
To see how all of this is playing out in the crypto markets, the easiest way is to think in terms of resistance levels, which are simply important price targets. If a crypto can hit a price target, that builds confidence and optimism that it can hit another price target, and then another price target, and eventually it’s off. And that’s what we might be seeing now with Bitcoin, which has been testing the psychologically important $20,000 price point all summer. For a short time, it looked like the bitcoin bulls would capitulate, but no more. $25,000 is the new $20,000. And $30,000 will be the new $25,000. The longer you wait, the harder it will be to get in at an attractive entry point.
Here come the institutional investors
But wait, it gets better. That’s because there is a rational, real economic factor that also has the potential to propel Bitcoin higher. And this is the arrival of institutional money in the crypto market. Large pension funds, endowments and endowments are just itching to deploy some of their capital in the crypto markets. We see that clearly in the deal at the beginning of August between BlackRock (BLACK -4.21%) and coin base (COIN -11.27%), in which BlackRock institutional and retail clients can now access Coinbase crypto products and services through the Aladdin wealth management platform. This is hugely important as BlackRock is the largest wealth manager in the world with over $10 trillion in assets under management.
And BlackRock wasn’t resting on its laurels. Within days of announcing the Coinbase deal, it also announced that it would be launching a private bitcoin trust for its wealthiest US clients. The company also gave Bitcoin an unqualified endorsement: “Bitcoin is the oldest, largest, and most liquid crypto asset and is our customers’ primary interest in the crypto asset space right now.” Boo-yah! Add that Fidelity Investments is now making it easier than ever to invest your 401(k) plan in Bitcoin, and there are very strong signs that Bitcoin’s next phase of growth could be led by large, institutional investors.
An unforgettable September
This could be a September to remember. Bitcoin lags behind ether (ETH 33.07%) for much of the summer, largely as crypto investors targeted The Merge and primarily allocated their funds to Ethereum. The merger, which represents a massive technological upgrade for Ethereum, is now scheduled to take place on September 15th. After this date, we could see a return to the traditional situation in crypto markets: Bitcoin is the focus of investors’ attention and Ethereum is a secondary option. This too will result in more money flowing into Bitcoin.
Sure, The Merge might end up being a nothing burger. And yes, the price of bitcoin could just as easily go to $10,000 as $40,000. But September could also be the start of another long, sustained crypto rally in which Bitcoin will play a major role.
Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Inc., and Ethereum. The Motley Fool has a disclosure policy.
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