1 Green Flag and 1 Red Flag for Bitcoin Investors

In June, Bitcoin (BTC 0.24%) temporarily broke through the $30,000 mark, and many bulls were convinced that the sky was the limit. But since then, the cryptocurrency has drifted lower and during the past 30 days it has declined 4.5%.

So where is Bitcoin headed next? There are two factors to watch, both of which could have tremendous implications for the long-term price of the world’s most popular cryptocurrency.

Green flag: Bitcoin Dominance metric

Within the crypto industry, Bitcoin dominance is a popular metric for determining how “dominant” Bitcoin is among all other cryptos. By dividing Bitcoin’s market capitalization by the total value of the crypto market, it’s easy to see at a glance how investors are thinking about Bitcoin and the crypto market overall.

What’s striking here is how the Bitcoin dominance metric has oscillated over the summer. As can be seen in the TradingView chart above, up until about mid-June, the Bitcoin dominance metric was sitting between 47% and 48%.

But then, as soon as news broke that BlackRock (BLK 1.27%) was applying for a new spot Bitcoin exchange-traded fund, the ratio immediately increased to 52%. The thinking then was that the digital coin was going to receive a huge new wave of institutional money, and that sent the price (and market cap) soaring.

But then something just as interesting happened in mid-July: the XRP (XRP -0.10%) court ruling, in which the court concluded that the crypto wasn’t an unregistered security. That news was almost unanimously viewed as being positive for the overall crypto market, and especially for more speculative altcoins.

And that sent the prices of altcoins — especially those directly in the crosshairs of the Securities and Exchange Commission — soaring. The overall market consensus changed: It was now altcoin season, and Bitcoin was out of favor. 

Image source: Getty Images.

That dynamic explains why Bitcoin has been treading water over the past 30 days, and why the Bitcoin dominance metric is now hovering just below 50%. A green flag for the crypto, then, would be the breakout of this metric to a higher level. This would signal that a massive new influx of institutional money into Bitcoin is coming soon.

As long as the metric is stuck at recent levels, it seems like investors are almost evenly split on whether it’s Bitcoin season or whether it’s altcoin season.

Red flag: The Litecoin halving

The second major factor to watch is the Litecoin (LTC -0.16%) halving, now scheduled for Aug. 2. In a halving event, the mining reward is cut by half, and that immediately affects technical factors such as the overall supply growth of the coin.

The conventional thinking is that halving events, which take place only once every four years, are very bullish for the prospects of a cryptocurrency. Thus, heading into 2023, many crypto investors expected the run up to the August halving event to be very bullish for Litecoin. But that simply hasn’t happened and Litecoin is only up 1% over the past 30 days.

If you’re a Bitcoin investor, what happens with Litecoin matters, because Bitcoin also has a halving event coming up. Moreover, Litecoin was created from a copy of the original Bitcoin source code, so the two cryptos share a common DNA.

Right now, crypto investors are optimistic about the Bitcoin halving in April 2024, primarily because past halving events for Bitcoin have produced spectacular returns. In fact, Standard Chartered Bank is now suggesting the price of Bitcoin could soar to as high as $120,000 by the end of 2024, primarily as a result of this halving. That’s a quadrupling from today’s level of a little more than $29,000.

However, there could be a red flag for Bitcoin if the Litecoin halving turns out to be a nothing burger. You can think of the Litecoin halving in 2023 as a preview of the Bitcoin halving in 2024.

If the Litecoin halving doesn’t deliver a pop, then what does that mean for the Bitcoin halving next year? Are all those massive price forecasts for Bitcoin hitting $100,000 and beyond based on just hope and speculation? Remember: Past results are no guarantee of future returns.

What’s next for Bitcoin?

There are other factors that could influence where Bitcoin is headed. Right now, for example, whatever the Federal Reserve does next after its latest interest rate hike can very much influence the price of Bitcoin over the short term.

However, I’m keeping my eyes on factors with long-term implications for the price of Bitcoin. A green flag would be the continued influx of institutional money into Bitcoin, while a red flag would be a Litecoin halving that fails to produce as expected.

By the end of this summer, investors should have a much better idea of where Bitcoin could be headed in 2024 and beyond. For now, I remain cautiously optimistic.