Startling as it may seem, Bitcoin (CRYPTO: BTC) has notched a dizzying ascent, hurtling to a 52-week high of nearly $53,000 this week, bolstered by a remarkable surge that propelled the cryptocurrency almost 25% in just a matter of days.
Amid the recent surge in Bitcoin’s value, several contributing factors are discernible, with two particularly prominent catalysts driving the rally. The trajectory of Bitcoin’s rally past the $50,000 mark is indicative of a larger trend in the offing.
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Observing a Pattern of Cycles in the Market
Looking back at Bitcoin’s price movements over the years reveals a discernible pattern characterized by a cycle of boom and bust. After reaching new highs, Bitcoin invariably plunges into a protracted and punishing bear market with these cycles appearing to occur roughly every four years.
During the preceding cycle, Bitcoin catapulted to its all-time pinnacle of nearly $69,000 in November 2021, only to nosedive precipitously into a bear market in 2022. Over the course of this downturn, it shed over 75% of its value, plummeting at one point to a mere $15,759.
However, commencing from the beginning of 2023, Bitcoin began a gradual ascent from what some analysts have dubbed as the lengthiest crypto winter in its 15-year annals. Ultimately, by the close of 2023, it had accrued gains exceeding 150%. Consequently, as a new year kicks off, Bitcoin appears poised for another bullish phase as capitulation winds down and confidence rebounds by the day.
The Entry of a New Class of Investors Into the Fray
Intensifying the resurgent sentiment was the green light granted by the Securities and Exchange Commission for new Bitcoin exchange-traded funds (ETFs). Long sought after by the Bitcoin community, Wall Street’s embrace of the original cryptocurrency is widely viewed as an implicit mark of validation, signifying that Bitcoin is no longer perceived as merely an obscure form of internet currency.
Although the hullabaloo surrounding the ETF approvals undeniably stoked Bitcoin’s revival, the true impact of these milestones is only beginning to unfold. Data indicates that, on average, a staggering $125 million has poured into the ETFs daily in slightly over a month. To meet the escalating demand, the firms backing these ETFs, including BlackRock, Fidelity, and ARK Invest, plunged into historic buying sprees.
As of February 15, sponsors of the Bitcoin ETFs had collectively purchased an astounding 251,888 bitcoins. BlackRock’s iShares Bitcoin Trust (NASDAQ: IBIT) leads the pack with 109,609 bitcoins. Cumulatively, these ETFs now lay claim to approximately 3.4% of Bitcoin’s total supply of 21 million coins.
The events unfolding over the past month are unparalleled in Bitcoin’s history. These ETFs are acquiring Bitcoins at a rate outstripping their production. On average, about 900 bitcoins are mined and enter the market daily, the contrast coming into focus when on February 13, BlackRock alone acquired 10,004 Bitcoins – a rate of acquisition soaring 11 times above that of Bitcoin’s production.
As with any asset for which demand outstrips supply, the price of Bitcoin is compelled to ascend. While the cyclical nature of Bitcoin’s price doubtlessly influences the recent surge, its newfound abode in Wall Street is proving to wield a far more substantial impact.
Foreseeing What Lies Ahead for Investors
As explosive as the past few months have been for Bitcoin, the price surge may well be far from waning. Come April, it is poised to undergo its fourth halving— halving the rewards that miners receive for validating transactions on the blockchain in half. Encoded into Bitcoin’s protocol and transpiring approximately every four years, halvings play an intrinsic role in the cryptocurrency’s monetary policy, as they curtail its inflation rate.
Historically, in years marked by a halving, Bitcoin’s value has surged over 120% as demand jostles for a diminishing supply of new coins. The forthcoming halving could be especially explosive amid the backdrop of the ETFs undertaking historic accumulations.
Subsequent to the halving, the number of bitcoins entering the market daily will dwindle to approximately 450. Should ETF operators persist in amassing tens of thousands of bitcoins each day, it would come as no surprise if Bitcoin sustains its momentum well into 2024.
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RJ Fulton holds positions in Bitcoin. The Motley Fool has positions in and advocates for Bitcoin. The Motley Fool upholds a disclosure policy.
The expressions and opinions articulated are those of the author and do not necessarily align with those of Nasdaq, Inc.
