Bitcoin has surpassed the $70,000 mark. The rally has come after more than two years since November 2021, when the price of Bitcoin skyrocketed to nearly $69,000 but later dropped by half, diminishing its appeal as an asset class. It is currently trading at $71,700. It's not just Bitcoin that's experiencing this upward trend, other cryptocurrencies are also joining the rally. For example, Solana and Ethereum have seen approximately 12% and 15% growth, respectively, in the last 7 days.
The surge in prices last time was driven by the liquidity created by Covid-19. However, this time, the crypto market has rallied due to factors like the increasing popularity of Bitcoin ETFs, anticipation of Bitcoin halving in April, and the expected rate cut by the US Federal Reserve. Here are four key reasons in detail behind this upward trend in cryptocurrencies:
Bitcoin Halving: Bitcoin experiences a halving event approximately every four years, reducing the reward for Bitcoin mining by half. This mechanism is designed to control the supply of Bitcoin, leading to a positive impact on its price. With only 21 million Bitcoins ever to be mined and nearly 19 million already in circulation, each halving has historically driven Bitcoin prices to new heights. Crypto experts predict that the upcoming halving in April 2024 will likely follow this trend, with prices expected to peak in the future.
"For investors, tracking these flows should be a strong indicator of future price action, as increased demand along with the upcoming reduction in supply (due to the fourth halving) could result in upward price movement. Around the estimated halving in April, traders can also expect heightened volatility as BTC’s price is now above its all-time high. Investors will need to be very careful and do their research while engaging with leverage, as liquidations could be triggered due to volatile movements," said Parth Chaturvedi, Investments Lead, CoinSwitch Ventures.
Bitcoin ETFs: Bitcoin Exchange-Traded Funds (ETFs) have been introduced on regulated US stock exchanges since January 2024. These ETFs offer investors a secure and regulated means of investing in Bitcoin, mitigating risks associated with asset security and company closures. Mudrex, a crypto investment platform, has launched US Bitcoin Spot ETFs for Indian investors, providing them a way to invest in Bitcoin ETFs with a minimum investment of $5000. The availability of ETFs from companies like BlackRock, Fidelity, Franklin Templeton, and Vanguard further enhances investor confidence.
"The current crypto market rally has taken even the most optimistic crypto supporters by surprise, as the price is being driven by massive institutional interest, in the form of strong inflows into the recently launched Spot Bitcoin ETFs in the US. In just over two months of going live, Blackrock's IBIT and Fidelity's FBTC have already accumulated more than $12 billion and $7.5 billion in AUM. Even though most experts were predicting such flows for the entire year of 2024, the speed of accumulation and subsequent price rise were unexpected," said Chaturvedi.
Institutional Buying: Institutional adoption of Bitcoin is gaining momentum, significantly contributing to its price surge. The acceptance of Bitcoin by major institutions like the London Stock Exchange and the infusion of $2 billion in Tether's USDT indicate growing demand for Bitcoin among ETFs. With greater liquidity in the market, investors are anticipating new highs and seizing opportunities for increased gains.
"The growing acceptance of Bitcoin across institutions is acting as a major catalyst for price surge of the token. Investors are looking at this as a move towards greater credibility for the asset. For example, today the London Stock Exchange announced that they would accept Bitcoin and Ethereum Exchange-Traded Notes (ETNs) this year. There is greater liquidity in the market with Tether’s $2 billion dollar USDT freshly infused, indicating the increased demand for Bitcoin among ETFs. The ecosystem is bracing itself for new highs and trying to enter the market for better gains," said Rajagopal Menon, Vice President, WazirX.
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Expected Cut in US Interest Rate: The rise of Bitcoin indicates investors' growing appetite for alternative investment mechanisms that tend to offer higher returns in a relatively short span of time compared to traditional investment options. The prospective cut in US interest rates is influencing global investment dynamics, prompting investors to consider high-yielding investments like Bitcoin.
Though the Bitcoin and other cryptocurrencies have started surging again it is important to keep in mind that it is an unregulated asset class in India. Though retail participation is still nowhere close to the mania seen in 2021 there is a need to be aware of the high risk associated with investing in cryptos.
