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Why bitcoin's pullback could be 'healthy' for a run to $100,000

Bitcoin may have tumbled nearly 20% from an all-time high of nearly $65,000 it hit just 10 days ago, but that might not make $100,000 by the end of the year any less likely.

In fact, according to one forecaster who has a $100,000 year-end price target for bitcoin, a "healthy" pullback might actually strengthen the bull case.

"We don't see this necessarily as something that's taking us to ... a 2017-type market top," Fundstrat Lead Digital Asset Strategist David Grider told Yahoo Finance on Friday, harkening back to the 2017 top that proceeded an 80% collapse. "But more so as something where the market needs to have a healthy cooling off period before the market can continue forward."

Among fellow bulls who share Grider's opinion in predicting significant upside to come, many point to bitcoin's boom-and-bust cycles tied back to the mechanics of bitcoin's code which automatically cuts the price paid to miners confirming transactions on the network in half roughly every four years in an event dubbed a "halving." In May 2020, bitcoin experienced its third "halving" when the miner reward was automatically reduced from 12.5 bitcoin to 6.25. Historically, bitcoin's price has rallied after those events, as most recently marked by the nearly 3,000% rally that followed in the 18 months after the second "halving."

On top of that, other technical traders have increasingly pointed out how well another model tied to bitcoin's halving has tracked bitcoin's price rise over the years. Referred to as the "stock-to-flow" model, it measures existing supplies, usually of commodities, against the flow at which new inventory is produced. In the case of bitcoin, halving events, by definition, cut that flow in half. When applying the measure to bitcoin, the founder of crypto investment firm Pantera Capital, Dan Morehead, expressed his surprise at how bitcoin's price has moved in lockstep with projections.

Another widely-followed technical analyst pointed out on Twitter that a longer trend chart showed a similarly predictive path for bitcoin's price dating back to 2012 and actually expressed relief at the recent dip back down to bring it closer to the model.

Looking past bitcoin, Grider says the volatility — or lack thereof — seen in other cryptocurrencies also points to continued strength rather than a top. The second-largest crypto by market cap, ether (ETH-USD), has only retreated about 5% from its most recent high.

"I think one of the things that does give us a bit of confidence in where we're at with the longer-term cycle is that if you look at other large digital assets like Ethereum, which has held up pretty well in relative terms even during this pullback bitcoin has had, it's been, on a relative basis, kind of actually making newer, recent highs over the last few years," he said. "So I think that that's a strong indication that big segments of the market really are just seeing capital kind of move around within it, and we're not necessarily seeing a super flee of capital."

If anything, we've seen the opposite among larger players as of late. This week, Morgan Stanley unveiled that it raised nearly $30 million from more than 320 investors for its new crypto fund in just 14 days, according to new filings. Goldman Sachs is also said to be working at rolling out investment access to bitcoin and other digital assets for wealth management clients relatively soon. And from a regulatory perspective, the SEC officially acknowledged a third active bitcoin ETF filing the agency is now reviewing. It's due to weigh in on VanEck's filing first, by April 29, to either deny, delay, or finally green light the first U.S. bitcoin ETF.

Given that progress, Grider reaffirmed his $100,000 price target, but conceded short term volatility could continue.

"I think, you know, if you're a trader, maybe you can think about that. But I think if you're an investor with a longer-term time horizon, I think there are still reasons that folks should still be involved in crypto," he said.

Zack Guzman is an anchor for Yahoo Finance Live as well as a senior writer covering entrepreneurship, crypto, cannabis, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.

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