Tuesday 08 October 2024
Bitcoin Breaks Records: Sustainable Rally or Euphoric Bubble?
Since February 26th, Bitcoin (BTCUSD) bulls have been back in charge, significantly driving up the price of the cryptocurrency to a new all-time high on Monday, March 11th, slightly above the $73,000 mark. Renewed optimism surrounding the cryptocurrency is raising questions about the driving forces behind this rally and whether it can be sustainable. Let’s take a closer look:
Bitcoin Hit an All-Time High on March 11th
In the last 16 days, from the opening price on February 26th to the peak on March 11th, the price of Bitcoin has been accelerating upwards with gains of 40.93%, going from $51,805 to $73,011. It surpassed its former peak hit in November 2021 of around $69,000 on March 5th, 2024, and recorded a new all-time high on March 11th, slightly above the $73,000 mark. (Source: The Guardian)
Why Is Bitcoin Booming?
One of the main reasons for Bitcoin’s recent surge and growing investor interest may lie in the emergence of new financial products dedicated to crypto-investors—the ETFs Bitcoin Spot.
On January 10th, the Securities and Exchange Commission (SEC) authorized the listing of 11 Bitcoin-backed Exchange-Traded Funds or ETFs, issued by companies such as Fidelity Investments (FNF), Blackrock (BLK) and VanEck among others, which seems to have increased investors’ interest in the cryptocurrency.
For example, BlackRock’s Bitcoin ETF funds reached over $10 billion in less than two months, the fastest-growing fund dedicated to an American ETF in U.S. history. While many often compare Bitcoin to Gold (XAU), it is also interesting to note that it took two years for the first ETF on Gold to reach the same level of interest and accumulate $10 billion.
Furthermore, on March 11th, news about potential Bitcoin ETFs on the other side of the Atlantic seems to have given Bitcoin another boost.
The Financial Conduct Authority (FCA) from the United Kingdom declared that it “will not object to requests from Recognised Investment Exchanges (RIEs) to create a UK-listed market segment for crypto asset-backed Exchange Traded Notes (cETNs)” for professional investors.
But how might these new financial products be contributing to Bitcoin’s recent price rise?
Bitcoin ETFs usually offer investors simplified access to Bitcoin via traditional platforms and brokers, eliminating the need to hold and secure BTC tokens. This approach tends to make trading cryptocurrencies easier for those unfamiliar with exchange platforms or the cryptocurrency world generally.
In addition, Bitcoin ETFs are likely to attract new investors in mainstream finance, increasing market liquidity. The approval of these ETFs by regulators could reinforce Bitcoin’s credibility as a financial asset, which may encourage large investors, such as institutional investors, to gain exposure to Bitcoin.
Another factor that might be influencing the price of Bitcoin now is the upcoming halving event that happens every 4 years, likely to occur in April 2024. BTC miners will then receive 50% fewer Bitcoin for their mining efforts (approving transactions on the Bitcoin blockchain), meaning the rewards will go from 6.25 BTC to 3.125 BTC.
During halvings, supply and demand dynamics come into play and may influence the price of Bitcoin. Since halvings reduce the amount of newly created Bitcoin, they might impact scarcity. If the demand remains the same or increases while the offer goes down, then it could potentially lead to an upward price movement on Bitcoin.
Conclusion
Bitcoin has strongly increased over the past two weeks to a new record high as factors ranging from Bitcoin Spot ETFs to anticipations surrounding the halving event materialized. However, there seem to be lingering questions about whether these events and their impact on Bitcoin have already been fully priced in.
Bitcoin’s longer-term outlook still remains uncertain, with various challenges such as security and regulatory concerns on the horizon, which might result in higher volatility.
