Bitcoin (BTC) has surged 50% so far this year, hitting an impressive All-Time-High (ATH) of $73,794 last week and a staggering $1.44T market cap. Its meteoric rise has pulled other cryptocurrencies’ prices with it, captivating seasoned investors and newcomers alike. Bitcoin’s surge is fuelled by several key factors, all suggesting that the crypto titan’s price may sustain or even surpass current levels in the short-to-medium term:
1. BITCOIN ETFs
In January, the Securities and Exchange Commission (SEC) approved US spot Bitcoin ETFs, including those from industry giants Blackrock and Fidelity. This regulatory green light propelled flows into Bitcoin ETFs past the $20bn cumulative mark, eclipsing gold ETFs. Typically, when investors purchase ETF shares, authorised participants (APs), like JP Morgan and Jane Street in Blackrock’s case, acquire the actual assets, in this case Bitcoin, and give them to the ETF issuer. This process keeps ETF prices aligned with the underlying asset price. Consequently, the vast inflows into Bitcoin ETFs prompted these APs to buy substantial amounts of Bitcoin, further boosting demand and pushing prices higher.
2. ETHEREUM ETFs:
Furthermore, Bitcoin is leveraging the momentum of other cryptocurrencies, particularly Ethereum (ETH), which recently implemented a significant update on March 13th. The upgrade improved transaction speed and slashed transaction fees, bolstering Ethereum’s popularity and solidifying its position as the second-largest cryptocurrency. This has enhanced the token’s credibility at a crucial time, as the SEC is currently reviewing applications for ETH-based ETFs which aim to replicate the success of their Bitcoin counterparts. With a decision expected by May 23rd, the anticipation of hype replication through Ethereum ETFs has generated high expectations and contributed to the positive sentiment surrounding the crypto market, further supporting Bitcoin’s growth.
3. HALVING:
Satoshi Nakamoto introduced the halving mechanism in the enigmatic 2008 Bitcoin white paper, which outlined the foundational principles and mechanics of Bitcoin. Halving aims to reduce the rate at which new BTCs are created, thus maintaining inherent scarcity to safeguard against inflation. This process cuts the reward for mining Bitcoin by half roughly every 4 years until the theoretical maximum supply of 21 million coins is reached around 2140. Historically, the supply reduction caused by halving has consistently impacted Bitcoin prices. For instance, in 2012, when Bitcoin’s block reward was cut from 50 to 25 BTC/block, prices rose by 5%. Similarly, in 2016, Bitcoin experienced a notable 13% increase in price after the halving event, and in the lead-up to the May 2020 halving, prices soared an impressive 27%, according to Deutsche Bank.
The next halving is expected on April 19th, widely regarded as the primary driver behind recent surges in BTC prices. Investors increasingly recognise the profit opportunities from an approaching supply shock coupled with heightened demand due to the positive sentiment surrounding the cryptocurrency market.
4. INTEREST RATE CUTS:
The soon-approaching central bank rate cuts have also emerged as a bullish tailwind for Bitcoin. In line with market expectations, the US Fed left interest rates unchanged at their highest level in 23 years, between 5.25 and 5.5 percent last Wednesday in its March meeting. Nevertheless, Jerome Powell maintained his prediction of a 75bps reduction in rates throughout 2024, making Bitcoin prices rally after dipping to $60,000 due to profit-taking after last week’s ATH. Lower interest rates create a favourable environment for Bitcoin, leveraging its appeal during times of increased consumer optimism that foster risk appetite and support inflows into speculative investments. Notably, this was also the case of the run experienced by Bitcoin in 2021, largely stimulated by ultra-low interest rates postCOVID.
5. CRYPTOCURRENCY REGULATION:
Finally, the prospect of a better regulatory framework, exemplified by the EU’s “Markets in Crypto-Assets Regulation” (MiCA), promises to support Bitcoin’s legitimacy. MiCA, set to be fully implemented by December 2024, is expected to provide greater regulatory clarity and foster wider adoption, particularly among traditionally more skeptical investors. This promises to enhance Bitcoin’s liquidity, thus contributing to its long-term stability and potential upward price trajectory.
CONCLUSION:
The convergence of various factors, such as the approval of Bitcoin ETFs, potential Ethereum ETFs, Bitcoin’s halving mechanism, future central bank rate cuts, and the enhancement of crypto regulation, underscores Bitcoin’s growing significance as a valuable asset in the global financial landscape. These dynamics are expected to reinforce Bitcoin’s status as a compelling alternative investment choice, attracting even more attention and likely sustaining its upward trajectory in the coming months. One compelling example of Bitcoin’s increasing appeal and transformative potential as an investment choice is evident in recent actions taken by El Salvador. Most notably, the country embraced Bitcoin as legal tender in 2021, and President Nayib Bukele later announced the ambitious “1 Bitcoin a day” policy, pushing the nation's Bitcoin holdings to a substantial total of 5,690 BTC, valued at approximately $400 million. As Bitcoin continues to gain acceptance, it presents opportunities for both nations and individual investors to drive economic growth, profits and prosperity, further solidifying Bitcoin’s role in the economy, and possibly fueling its growth in the years to come.
Written By: Gonzalo Cruz
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