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Bitcoin Hits All-Time High on Tuesday: What’s Behind This Rally? Can It Be Sustained?
Key points
- Bitcoin has surpassed its previous all-time high of $69,000, reached in November 2021.
- The largest cryptocurrency by market cap gave up some of those gains, pulling back as some traders took profits
- Proponents argue that the surge is due to high demand and low supply, along with the SEC’s approval of spot bitcoin ETFs.
- Skeptics see no change in fundamentals; some analysts argue that ETFs would increase price volatility.
The price of bitcoin (BTC) surged to an all-time high of $69,191.95 on Tuesday morning before falling to around $62,000 by late afternoon as some traders took profits. Despite the decline, the largest cryptocurrency by market cap is now up more than 48% year-to-date and has nearly tripled in the past year alone.
What is driving Bitcoin’s growth?
In January, the SEC approved 11 bitcoins spot ETFs, paving the way for mainstream users to easily invest in cryptocurrency. And this move has not only boosted investor optimism, but also money in new funds. BlackRock’s spot bitcoin ETF (IBITS) became the fastest fund to reach $10 billion this week, Bloomberg reported.
According to cryptocurrency enthusiasts, this move, combined with high demand and limited supply, as well as the upcoming halving, has helped drive this year’s price surge.
Dirk de Bruin of research firm Intelligent Cryptocurrency called spot bitcoin ETFs a “game changer.”
“It now finally allows everyone to get exposure to BTC in a safe and compliant way,” de Bruin said in an email to Investopedia. “Before ETFs it was very difficult to do so, there were concerns about compliance and security, many individuals and funds did not want to deal with exchanges and have to hold their own coins, etc.”
ETFs actually have to hold bitcoin, and because the supply of bitcoin is limited to 21 million and there are already more than 19.6 million in circulation, demand is pushing the price higher, de Bruin said.
Brett Munster, portfolio manager at Blockforce Capital, said the amount of bitcoin deposited on exchanges is at an all-time low since 2017 and that investors tend to hold onto their bitcoin for the long term.
“What we are seeing is that the liquid supply of bitcoin continues to shrink while capital inflows grow,” Munster told Investopedia in an email. “Assuming these conditions continue to hold, we expect continued upward pressure on the price of bitcoin throughout the year.”
April’s halving, in which the reward miners receive for mining is cut in half to ensure bitcoin’s scarcity, will likely further exacerbate this supply crunch, Munster said.
Cryptocurrency researcher Noelle Acheson said that until this week the rally was largely due to growing awareness, initiatives like ETFs and the realization that central banks are simply printing money to finance government debt.
Can this momentum last?
There are many factors driving the rally, and predictions are endless: Cathie Wood, CEO of Ark Invest, predicts that the cryptocurrency will reach $1.5 million by 2030, while Tom Lee of Fundstrat predicts $82,000 in the short term and $150,000 by the end of the year.
But some analysts are wary of the excitement surrounding price expectations.
“It’s starting to look speculative as traders and investors anticipate what they see as momentum,” Acheson said in a message to Investopedia. “There are still strong ‘fundamental’ inflows for sure, by which I mean buyers looking for a long-term allocation for diversification. But there’s also some froth from expectations that the all-time high is about to be breached, pushing BTC price to higher highs based on momentum coupled with a dwindling readily available supply.”
Others believe that the very reason for the rally, namely the approval of the ETF, could cause price volatility.
“On January 11, the launch date of all 11 ETFs, bitcoin volatility began to increase for the first time in more than 16 months,” wrote David Puell, an analyst at Ark Investments, in a commentary Monday. “Before Q1, bitcoin’s quarterly volatility had been declining relative to its annual volatility for more than a year,” they wrote.
For skeptics, nothing has changed and ETF approval is not a leading indicator of approval.
“The ETF approval is taken as an endorsement of bitcoin and its viability or safety, when in reality that’s not what it was,” said Molly White, a software engineer and cryptocurrency skeptic. “It’s probably provided more confidence as an asset class, which is probably not deserved.”
There have been very few real changes in regulation and legislation regarding the status of cryptocurrency, White said in a phone interview. “The markets are still the Wild West.”
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(Update: March 5, 2024: This story has been updated to reflect bitcoin’s lower prices after hitting all-time highs.)