Bitcoin has 'perfect correlation' with ETF flows: Strategist

Bitcoin's (BTC-USD) halving, a once-every-four-year event that divides the rewards for mining bitcoin and limits the number of bitcoin in circulation, occurred over the weekend. FS Investments Chief Market Strategist Troy Gayeski weighs in on the gains that could come to bitcoin prices post-halvening and more investors adopt crypto into their portfolios.

"Classically, wherever you have new supply constrained... and demand stays constant, you get higher prices. Bitcoin is an incredibly cyclical asset, we'd expect more upside," Gayeski tells the Morning Brief. "The cautionary note, though, it's unclear to everyone how much of that upside is priced in, because you had the ETF flows, the approval, the surge, and you already made new highs prior to the halving, which had never been done before..."

Want to learn more about the bitcoin halving? Watch this video from Yahoo Finance for a quick explainer: Bitcoin halving: Explained

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Luke Carberry Mogan.

Video transcript

- Bitcoin, we got to talk about this for a hot second here. Having taking place on Friday, the phenomenon happening roughly every four years. Of course, the 210,000 blocks that need to be created here. I've got to know, from your perspective, how much more of a tailwind that provides to some of the Bitcoin pricing now, and how you're evaluating it.

TROY GAYESKI: Yeah, so classically whenever you have new supply constrained, and demand stays constant, you get higher prices. So Bitcoin is an incredibly cyclical asset. We'd expect more upside. The cautionary note, though, is it's unclear to everyone how much of that upside is already priced in, because you had the ETF flows, the approval, the surge, and you already made new highs prior to the halving which had never been done before.

So from our perspective, we do expect further upside. However, you have to be cautious with volatility. Again, remember that term uncomfortable levels of risk. If you can't tolerate a 10%, 15%, 20% drawdown you probably shouldn't be investing in the first place. But I would be surprised if we're not at 50% to 100% over the next year.

- When you talk about then that catalyst going forward, what is it going to be in order to get to those all time highs?

TROY GAYESKI: So I think it's very dependent on whether ETF flows continue to be positive. Since ETF approval, it's almost been a perfect correlation. When there's flows coming in, and the Wall Street marketing machine can attract new capital, Bitcoin goes up. When there's outflows it corrects, or goes the other way. So it's very difficult to predict that, but you would think as there's more and more adoption there will at least be enough flows to absorb new supply, and then some which will drive price higher.

- And then, additionally here when we think about some of the other ETFs that could potentially be listed this year, do you think that there's any perhaps large difference in the number of people who are willing to flow into Bitcoin or continue to flow into Bitcoin versus the ETFs that have been put forward like Ethereum, or some of the other altcoins.

TROY GAYESKI: Yeah, I think Bitcoin is very different, because it's really got institutionalized last cycle, meaning there was always the ability to attract capital away from let's call it the crypto community. I think when you're talking about other cryptos, for instance Ethereum, there's a lot of debate over whether Solana is going to eat their lunch or not. You have very disappointing performance so far in this cycle. And I just don't see the same degree of institutional adoption like you have with Bitcoin. Because ultimately Bitcoin it's hard money, it's an inflation hedge. It's a government profligacy hedge, that more and more institutions are adopting.

- Troy, great to see you in person.

TROY GAYESKI: Great to be here as well. Yeah, yeah.

- Troy Gayeski who is the FS Investment's Chief Market Strategist. And a programming note that also involves Troy. Yahoo Finance launched our brand new podcast, The Opening Bid, this morning, bright and early, 8:00 AM. Troy Gayeski joined our executive editor Brian Sozzi, and talked all things markets and tech. Catch Opening Bid with Brian Sozzi every Monday and Friday at 8:00 AM Eastern.