Categories: NewsWorld

Bitcoin surpasses US$60,000 as demand from ETFs triggers bull run

At the heart of the rally that is pushing Bitcoin toward a record high is a simple tenet of economics: Supply and demand.

The surge in demand for the cryptocurrency that’s resulting from new exchange-traded funds is vastly outstripping the amount of Bitcoin that long-time holders are willing to sell. That’s what lit the match that has set the crypto market on fire, with fuel being added from traders chasing the upward momentum, covering short positions and loading up on leveraged bets that the bull run will continue.

It all culminated in a wild session for the cryptocurrency market on Wednesday, with Bitcoin jumping as much as 13% to $63,968 — its first trip above $60,000 since November 2021 — before it pared gains as a surge in traffic triggered trading outages and displays of $0 balances for users of Coinbase, the largest US digital-asset exchange. 

Bitcoin has jumped about 40% already this year, triggered mostly by the successful launch of US exchange-traded funds holding the coins which have attracted more than $6 billion since they began trading Jan. 11. Bitcoin last traded at $60,000 in November 2021, after reaching an all-time high of almost $69,000 earlier that same month.  

“It’s pretty nuts,” said Ryan Kim, head of derivatives at digital-asset prime brokerage FalconX.

An upcoming reduction in Bitcoin’s supply growth, known as the halving, is adding to the optimistic sentiment. To be sure, halvings used to have a more significant impact on Bitcoin prices since miners earning rewards for their work validating blocks of transactions were in control of large portions of the new tokens issued by the blockchain. But the process alone now likely has much less influence on Bitcoin since the vast majority of the token is already mined. Still, with the next halving in April set to reduce supply amid a surge in demand from ETFs, speculative appetite is raging for Bitcoin as well as smaller tokens ranging from Ether to Dogecoin.  

“We are starting to see a pretty clear FOMO kind of rally,” said Zaheer Ebtikar, founder of crypto fund Split Capital. “More and more people are just convinced to buy.”

Bitcoin’s trading volume surged to more than $79 billion, or by almost 60% in the past 24 hours, according to data from CoinMarketCap.com. As the original cryptocurrency went higher and higher, Coinbase Global Inc. began experiencing what CEO Brian Armstrong referred to on the social-media platform X as a “LARGE surge of traffic.” The exchange reported that some users were experiencing errors when attempting to buy or sell and that some may see a zero balance in their accounts. “Your assets are safe,” Coinbase said on its website, later adding that activity had begun to normalize. 

The intense rally has Bitcoin on pace for its biggest monthly gain since December 2020, when the digital token jumped 50% to around $9,600.   

Bitcoin has more than tripled in value since the start of last year, climbing back from a 64% plunge in 2022, in a remarkable comeback from a series of crypto-industry scandals and bankruptcies that had raised questions about the viability of digital assets. 

Digital tokens are jumping even though investors have pared back expectations for looser monetary policy this year, evidenced by a rise in US Treasury yields. Bitcoin has outperformed traditional assets like stocks and gold in 2024.

“This reversal is all the more impressive in the light of central banks signaling they intend to keep rates high a while longer, eroding the theory that the next crypto bull would be driven by dropping interest rates,” said Michael Safai, co-founder at quantitative trading firm Dexterity Capital. 

The massive inflows into Bitcoin ETFs have prompted some industry watchers to warn of a looming supply squeeze as new coins from miners can’t keep up with demand. Some 80% of Bitcoin’s supply hasn’t changed hands in the past six months, potentially exacerbating the squeeze and adding to the upward price pressure, analysts have said. 

The nine new spot ETFs have more than 300,000 Bitcoin, or seven times the amount of new coins mined since Jan. 11. After the halving, expected in late April, the number of new coins mined daily will decline to 450 from 900 currently. If this demand stays constant, with supply of new coins cut in half, advocates are predicting that the price has room to rally. 

“All of this combined makes for a supply and demand imbalance,” said Dan Slavin, founder of Chainview Capital, a crypto hedge fund. “More demand than supply means price higher, and with BTC price volatility, price higher doesn’t mean 10%, it means a whole lot more.”

The speed of the rally has some observers warning that it leaves investors susceptible to the boom and bust cycles that have become emblematic of crypto. 

“This move has been very sharp, leverage is very high at the moment, as implied by derivatives basis and funding rates, so I would not be surprised by a sharp correction” or 20% or more, said Jaime Baeza, founder at crypto hedge fund AnB Investments. “Nonetheless I would not be shorting into this rally while it continues to move at this pace.”  –BLOOMBERG

Dayang Norazhar

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