With the United States presidential election just around the corner, investment management firm VanEck is recommending a Dollar Cost Averaging (DCA) strategy for Bitcoin (BTC) investors. This comes amidst a backdrop of recent Bitcoin sales by major players, including the US and German governments, as well as the defunct cryptocurrency exchange Mt.Gox.
Government Sell-Offs Weigh on Bitcoin Price
VanEck’s Head of Digital Assets Research, Matthew Sigel, acknowledges the negative impact these sales have had on Bitcoin’s price. In a letter to clients, the firm delves into the details of these significant selloffs.
Mt. Gox, which collapsed in 2014, is reportedly planning to distribute $8 billion worth of Bitcoin it holds, with an initial tranche of $3 billion. The future actions of the recipients, whether they choose to sell or hold (hodl), remain uncertain. VanEck expresses some optimism that they may follow the precedent set by Grayscale’s GBTC trust, where investors have largely held onto their positions.
Market Absorption Capacity Uncertain
However, the concern lies in the sheer volume of Bitcoin entering the market. Daily trading on cryptocurrency exchanges this year has already reached around $10 billion, not including over-the-counter (OTC) trades. Additionally, the German government is offloading a significant portion of the 50,000 BTC seized from pirated movie site operators earlier this year. Sigel estimates that roughly 37,000 BTC remain from this seizure.
The US government has also been a seller, transferring $240 million worth of Bitcoin to Coinbase Prime, leaving them with approximately 213,297 BTC. Sigel suggests that “spiteful government selling” may be contributing to the current weak price action, particularly considering the relatively low trading volume around the July 4th holiday.
Bitcoin Anticipated to Rise Despite Short-Term Pressures
Despite these headwinds, VanEck remains bullish on Bitcoin’s long-term prospects. The upcoming election, particularly with Republican candidate Donald Trump’s proposed strategic Bitcoin reserve for the US, is expected to trigger a new all-time high (ATH) for the cryptocurrency.
DCA Strategy for Long-Term Investors
VanEck’s DCA strategy recommendation aims to help investors navigate this market volatility. DCA involves making regular, fixed-amount Bitcoin purchases over time, regardless of the price. This approach averages out the cost per unit purchased, mitigating the risk of buying in at a peak.
The firm suggests a 6% allocation for both Bitcoin and Ethereum in a typical 60/40 portfolio benchmarked against traditional assets. This measured approach can help investors capitalize on the potential upside of Bitcoin while managing risk.
Election Outcome a Key Market Mover
The contrasting stances of the two leading presidential candidates on digital assets present an interesting dynamic for investors. Trump’s support for Bitcoin and crypto companies could give him an edge, while Joe Biden’s lack of endorsement may hinder him. The market will undoubtedly be closely watching how this political race unfolds.
In conclusion, while short-term price pressures from government sell-offs are a concern, VanEck’s DCA strategy offers a prudent approach for investors to navigate this market cycle. With the potential tailwinds of the US election and increasing institutional adoption, Bitcoin’s long-term prospects remain bright.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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