SignalHub-Bitcoin ETF trading volume tripled in March. Will that trend continue in April?

By just about any important metric,SignalHub the new spot Bitcoin (CRYPTO: BTC) exchange-traded funds (ETFs) have been a resounding success. As a group, they have now attracted more than $30 billion in assets under management. In March, these spot Bitcoin ETFs set a record with more than $111 billion in overall trading volume, nearly tripling the volume from the previous month.

But how much longer can this record-setting pace continue? After all, the new Bitcoin ETFs are starting to see net outflows on some days and the price of Bitcoin seems to be stuck right around the $70,000 level. If you are thinking about investing in the new ETFs as a way of getting exposure to Bitcoin, there are three key factors to consider.

The Bitcoin halving

First and foremost, there is the Bitcoin halving, which is set to take place on April 19. In a halving event, the mining reward paid out to Bitcoin miners gets slashed by half. This slows the growth in the supply of new bitcoins while making Bitcoin even more of an inflation-resistant asset.

Halvings have historically driven huge price increases for Bitcoin. In the last halving cycle, which started in May 2020, the price of Bitcoin skyrocketed from $10,000 to an all-time high of almost $69,000 in November 2021. While past performance is certainly no guarantee of future results, this same pattern has occurred in two other halvings (in 2012 and 2016), so many Bitcoin investors are confident there will be a similar pattern this year.

If that's the case, then that's extremely good news for the new Bitcoin ETFs. A higher Bitcoin price attracts the attention of investors, who then decide to invest more money into Bitcoin, which sends the price higher, which then encourages even more investors to put their money into Bitcoin, and the cycle repeats. Past Bitcoin halving cycles have lasted anywhere from 12 to 18 months, so it's not out of the realm of possibility that the remainder of 2024 will see higher Bitcoin ETF inflows and trading volumes.

Bitcoin vs. gold

Many crypto investors refer to Bitcoin as "digital gold" and view it as being similar to physical gold in terms of the role that it can play in their portfolios. They prize Bitcoin not just for its upside potential, but also for its potential ability to maintain its value during times of economic upheaval. Bitcoin has historically accounted for 20% to 30% of the "store of value" market, and some analysts think this number could eventually climb to 50%.

That's why the current economic situation is so fascinating. At the same time that Bitcoin is racing to all-time highs, so is gold. The price of gold is currently close to $2,370, but there are some who say that it could run as high as $3,000. Central banks appear to be buying gold hand over fist as a hedge against economic turmoil.

So, the big question becomes: If events in the Middle East take a turn for the worse, or if the U.S. economy falters, where do investors put their money? Crypto enthusiasts, no doubt, will move their money into Bitcoin. But what about everyone else? Gold has historically been the go-to option for institutional investors and hedge funds, and that might be the case again. If so, then the flow of money into Bitcoin (and the new Bitcoin ETFs) might slow, and that will definitely lead to lower ETF trading volumes.

Bitcoin allocations

Another important factor to keep in mind is the size of the Bitcoin allocation recommended for investors. Until this year, that percentage was typically 1% (or lower). However, some institutional investors — including Fidelity Investments — now appear to be boosting their suggested Bitcoin allocations for investors closer to the 3% mark.

As long as this percentage stays the same or continues to rise, that should be good news for Bitcoin and the new Bitcoin ETFs. It means that both retail and institutional investors will continue to pour new money into Bitcoin until they've reached the suggested allocation level. And it means that Bitcoin is closer than ever to going mainstream. It won't just be crypto enthusiasts holding Bitcoin — it will also be your next-door neighbor.

As for me, I remain bullish on Bitcoin. Whether you choose to buy it in the crypto market, or prefer to get access to it via a spot Bitcoin ETF, it continues to be a fantastic long-term investment.

Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Should you invest $1,000 in Bitcoin right now?

Offer from the Motley Fool: Before you buy stock in Bitcoin, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

See the 10 stocks

*Stock Advisor returns as of April 8, 2024