BTC

3 Key Factors Other Than the Halving That Will Drive Bitcoin Higher Until the Cows Come Home

As you may have heard, the halving of Bitcoin (CRYPTO: BTC) means that mining the coin will yield half as many tokens as before. Many people expect that this will drive the cryptocurrency's price upward, as supply growth slows.

But the halving isn't the only factor potentially lifting Bitcoin prices over time. Here are three other elements you may not have considered that strengthen the bull case for investing.

1. Fears about inflation

Everyone's acquainted with inflation by now. The precise figures don't even matter much: Prices are higher, and dollars simply don't go as far as they used to. The expectation that this will continue is real, at least for the moment.

Just look at this chart:

US Core Inflation Rate Chart

US Core Inflation Rate data by YCharts

The psychological shock of inflation during the past few years will doubtlessly continue to change investing and spending habits. Investors and households allocating more capital to stable assets that can retain their value is a given. But traditional safe haven assets like real estate are extraordinarily expensive relative to incomes at the moment due to the Federal Reserve's policy of using higher interest rates to tamp down on inflation.

Other somewhat stable assets, like gold, are on a tear right now too:

Gold Price in US Dollars Chart

Gold Price in US Dollars data by YCharts

Still, the average investor may feel ill-equipped to buy precious metals. Transacting in physical gold is a fairly high-friction process, and buying equities or other financialized assets based on gold may not provide the level of control over the asset that investors desire.

Bitcoin, however, has no such drawbacks. Many people can buy it right from their brokerage accounts now thanks to exchange-traded funds (ETFs) like the Grayscale Bitcoin Trust, though for those who prefer to retain full custody of their coins, it's still a touch more complicated.

Is Bitcoin an actual hedge against inflation? The issue isn't clear at all, and the jury will be out for at least a few more years. The more important thing is that there are people who believe it's a hedge, and that population appears to be growing, which will put some upward pressure on the coin's price.

2. Social proof is here, and building

Bitcoin isn't an obscure technology project anymore. It's mainstream, and becoming increasingly widely distributed. The benefits of this process have only started to pay off in terms of a higher coin price.

Wall Street banks are now involved in complicated financial engineering schemes to legally trade it via ETFs, and Main Street investors are buying it to hold for upside exposure over the long term. Financial technology companies are building projects on blockchains left and right. And regulators at the Securities and Exchange Commission (SEC) are working with market participants to construct the frameworks for defining fair play.

In other words, Bitcoin's level of social proof is only growing. Enough people are willing to accept that it's a store of value that it is now unreasonable to say that it has no real value.

What's especially favorable is that Bitcoin's protocol is quite difficult to alter, as consensus among many disparate parties would be necessary to do so. So the risk of unfavorable and value-destroying changes happening is low, which makes it a more appealing platform for conservative investors and speculators alike.

3. It's a frontier risk asset during a time of tremendous risk-seeking behavior

It's obvious that Bitcoin is a frontier risk asset. Its price is perennially volatile in part because there is no consensus about how it should be valued.

But its supply is finite, and this halving won't be the last one for Bitcoin. There are only 21 million Bitcoins that can ever exist. By Coinbase's estimates, all of the mineable Bitcoins will be mined by the year 2140.

At that point, price discovery will have a chance to reach a long-term equilibrium. Until then, assuming that demand continues to exist, the price is much more likely to rise over time than to fall to zero.

In the shorter term, people's appetite for risk taking will be an adequate driver of demand. As shown by the meteoric rise of sports betting applications and investing in highly speculative cryptocurrencies like meme coins, investors are looking for the opportunity to pay a small amount and get a huge amount in return -- or zero.

Bitcoin's reputation as a risky asset makes it the obvious contender for capturing some of those inflows, and for those willing to hold it for the long term, it's also likely a better option than the riskier plays.

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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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