Goldman Sachs Says Bitcoin Bottom Is Near. Is It Time to Buy?

Cryptocurrency prices have dropped significantly in the past six months. Bitcoin (CRYPTO: BTC) closed March 30 at roughly $66,700, more than 45% down from its October high. Growing risk-off sentiment, low trading volumes, and geopolitical tensions have all contributed to the decline of the leading crypto.

The waning interest also fits with historical price patterns: Bitcoin tends to enter a rut after hype-driven rallies, such as last year's wave of enthusiasm about potential legislative progress, mainstream adoption, and a pro-crypto administration. However, an end may be in sight for the latest crypto dip. A recent note from Goldman Sachs suggests Bitcoin may have reached its bottom.

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Why Goldman Sachs thinks Bitcoin's bottom is in

Like many investment banks, Goldman Sachs has expanded its digital assets platform for the last few years. In a recent note, analyst James Yaro pointed to two signals that could mark an end to Bitcoin's woes.The first is that institutional investors are re-entering the market. After four months of net outflows, $1.32 billion flowed into spot Bitcoin exchange-traded funds (ETFs) in March. This is a good sign for crypto recovery.

There was another shift in Bitcoin trading in March: The number of liquidations began to decrease. Liquidations happen when people invest using borrowed money (leverage). If the price moves too far in the wrong direction, platforms automatically sell their investments. It is hard for Bitcoin's price to increase when it is weighed down by these types of continued forced sales.

In October, there were a record $19 billion in liquidations in a single day. To put it another way, almost 1% of the total crypto market cap was wiped out. Six months later, there are fewer liquidations and higher trading volumes. A full recovery will take time, but these are all signs that the market is moving in the right direction.

Is it time to buy?

Calling the bottom can be challenging with any investment, especially one as volatile as Bitcoin. If the war in Iran continues, Bitcoin could well fall further as the current situation in the Middle East has been pushing investors -- who dislike uncertainty -- to assets that are less risky than crypto. The high energy prices caused by the war in Iran will almost certainly push up inflation, which may delay the hoped-for Federal Reserve rate cuts to the end of the year, or even early 2027, keeping investors out of riskier assets like crypto.

As to whether it is time to buy, consider what Bitcoin might do in the coming five to 10 years and how it fits into your portfolio. According to research by The Motley Fool, the U.S. government owns almost 200,000 Bitcoins, worth about $13.5 billion at today's prices. The very fact that the government has a Strategic Bitcoin Reserve adds legitimacy and lowers volatility. That, combined with soaring institutional adoption and regulatory progress, means crypto is more a part of our financial system than it has ever been.

Bitcoin is by far the dominant cryptocurrency, accounting for almost 60% of the total market cap and making it part of the foundations of cryptocurrency. Its price may fall in the near term, but long-term, it is positioned to soar, making this an attractive entry point for investors who want crypto exposure.

Emma Newbery has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Goldman Sachs Group. The Motley Fool has a disclosure policy.