What’s Driving Bitcoin’s Explosive Rise?

Increase in value of cryptocurrencies.

By Emil Bjerg, journalist and editor

Bitcoin’s value has reached a new historic high, surpassing the 2021 peak. What’s driving the crypto coin’s resurgence?

On March 5th, Bitcoin hit a historic high, surpassing the November 2021 peak of $68,999.99. With the crypto coin going up consistently throughout 2023 and explosively during 2024, the latest crypto-climb is one of the longest bull market cycles ever.

Bitcoin is back — and other cryptocurrencies like Ethereum, Solana, and XRP are following Bitcoin’s slipstream.

What’s driving the increased demand for cryptocurrencies? Let’s start with Bitcoin.

ETFs drive resurgence

Several factors explain the recent surge in Bitcoin’s price. Most importantly, the U.S. Securities and Exchange Commission (SEC) approved eleven ‘spot bitcoin ETFs’ in January 2024.

An Exchange-Traded Fund (ETF) is an investment fund traded on regular stock exchanges, making it available to anyone with an investment account. This differs from buying Bitcoin directly, which requires a cryptocurrency exchange and is more complex for the ordinary investor.

Adding Bitcoin to portfolios is a popular way to spread risks related to investing: “Investors are getting turned on to the fact that bitcoin can be treated as an uncorrelated asset, which makes it extremely attractive for portfolio diversification,” Joel Kruger, a market strategist at digital currencies exchange LMAX Group recently told CBS.

The introduction of spot bitcoin ETFs has opened the doors for more institutional investments in Bitcoin, such as pension funds and insurance companies. ETFs are generally seen as safer and more familiar than buying cryptocurrencies directly.

Since the SEC approved the sale of spot bitcoin ETFs in January, investors have placed $7.35 billion in the 11 new funds.

Interest rates and the halving event

A few other events, more psychological and expectations-based, also factor in.

High interest rates during the past indicate more costly borrowing, which can slow down investments. High interest rates mean that it’s more expensive to borrow money. The mere expectation that interest rates are decreasing can lead investors to opt for volatile options like Bitcoin, as the anticipation of lower rates influences their investment decisions.

Another—more speculative—factor behind Bitcoin’s growth is the upcoming halving event. Every four years, the number of Bitcoins available for mining is halved, reducing the reward for mining and affecting the supply of Bitcoins. The next halving event is taking place in April 2024.

Some investors anticipate the potential for increased scarcity to drive up prices in the long term, leading to increased demand before and after the halving event. That could explain parts of the Bitcoin surge.

Other coins follow

It’s not only Bitcoin that’s on the rise. Ethereum, Solana, XRP, and many other cryptocurrencies have also experienced significant increases over the last few weeks.

Ethereum, the second-largest cryptocurrency, does not merely follow Bitcoin’s slipstream. The coin’s growth is also a response to significant upgrades related to Ethereum’s blockchain, which aims to improve scalability and reduce gas fees. Technical updates and general crypto optimism can also explain the rise of other major coins like Solana and XRP.

With Bitcoin increasing by 45% in the first few months of 2024, some investors are cautious, suggesting that a general market correction might occur as profit margins become attractive to realize. “The market is positioned for a steep correction, possibly between 10% and 20%,” says Ed Tolson, founder of the crypto hedge fund Kbit, to CNBC.

It wouldn’t be the first time in recent years we have seen a dramatic correction after a period of crypto optimism.

Crypto resurgence after chaotic years

By the end of 2021, after Bitcoin’s historic high of more than $68,000, its value had come crashing down as investors opted for safer investments in an inflation-ridden economy.

A year later, FTX collapsed amidst allegations of fraud associated with Sam Bankman-Fried.” By then, Bitcoins’ value was down to just $17,000. Throughout 2023, Binance was in the limelight for failing to maintain a functioning anti-money laundering program, resulting in the ousting of CEO Changpeng Zhao.

However, with the new option to acquire Bitcoins as a part of investment funds, investors seem hopeful for the future of Bitcoins. At least till the next bear market potentially hits.

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