Bitcoin keeps shocking everyone with its latest performance, but what is fueling its rally?

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Bitcoin keeps shocking everyone with its latest performance, but what is fueling its rally?
12 Jun 2024
4 min read

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Bitcoin's recent performance has left both seasoned industry insiders and casual observers astounded. The leading cryptocurrency has surged past the psychologically significant $65,000 mark, edging closer to its all-time high of $73,000 achieved in November 2021. This rally has defied the previously bleak market sentiment, signaling what many believe could be the start of a new bull run. However, the inherent volatility of the crypto market tempers the excitement, reminding investors of the swift reversals seen in the past. Yet, this current cycle shows signs of being fundamentally different, driven by a combination of factors including the approval of Bitcoin ETFs, the latest halving event, and increased institutional interest. This blog post delves into the key drivers behind Bitcoin's recent surge, exploring the implications for the market and offering insights on navigating the opportunities and risks in this dynamic landscape.

Bitcoin keeps shocking everyone with its latest performance, but what is fueling its rally?”

 If you’ve been watching the crypto market closely, there’s likely no need to mention that Bitcoin has been going up these past months. At the time of writing, the leading cryptocurrency has succeeded in crossing a psychologically important mark of $65,000, placing the asset within a remarkable distance of its all-time high seen in November 2021 with its $73K record attainment, before the crypto market faced significant challenges.  

Bitcoin’s price action surprised everyone – including industry insiders- especially because the market sentiment around cryptocurrency has been bleak not too long ago. No one really saw it coming, but it looks like Bitcoin’s performance is the beginning of a bull run.

However, some are hesitant to get too excited about this event, given the volatility of the crypto space: let’s not forget that it’s always possible for things to fall back just as rapidly as they ran up.

And yet, there are legitimate reasons to believe this cycle is different from the one that happened in 2020-2021. The rising interest in crypto could no longer be coupled with the behavior the industry once saw or with fraud. ETFs could have possibly reshaped market dynamics by offering a safer way to gain exposure to cryptocurrency, according to Binance, transforming the new waves of interest into action.  

ETF approval has fueled an insatiable demand for BTC

The long-awaited ETF approval from the SEC is one of the reasons why investors' confidence in Bitcoin has boosted massively. The ETF trading volumes have exceeded expectations, attracting billions of dollars in investments. It’s very appealing for investors to know that they can treat Bitcoin as an uncorrelated asset, thus adding it to their portfolios. Simply put, a spot Bitcoin ETF enables you to gain exposure to the crypto leader without holding it in your wallet.

Firms that manage spot Bitcoin ETFs issue shares of their Bitcoin holdings either through a legitimate crypto exchange or other holders, listing the shares on a traditional stock exchange. Since Bitcoin ETFs were approved in January, investors have deposited around $7.35 billion into the funds available at that moment. However, a notable aspect is that Bitcoin showed signs of a price rally earlier in 2023 when it reached a 19-month high in December.

Now, the question is whether Bitcoin ETFs will continue to grow, and what will be the implications of that. One thing is clear: ETFs highlight the latent demand for Bitcoin from all market areas, including retail investors and high-net-worth individuals. According to some forecasts, the next billions of dollars could flow in even quicker than they did, attracting more people to participate in the market.

Also Read: Unlocking Bitcoin Futures: What They Are, How They Work, and Why They Matter?

The next halving event further enhances the bullish sentiment surrounding Bitcoin

The Bitcoin halving, having taken place this year’s April, is another event that added an extra layer of excitement to the crypto market. Bitcoin halvings happen every four years, and their purpose is to reduce the mining reward by half, thus lowering the rate at which new Bitcoins get into circulation. Given that past halvings have resulted in substantial bull runs for Bitcoin, investors believe that a similarly optimistic pattern will repeat - it’s just a matter of when. Bitcoin price upticks prompted by the halving are generally seen months after the event’s conclusion. 

The halving’s impact on the price of Bitcoin is tied to the supply and demand’s economics. More specifically, the mechanism goes like this: when the block reward is cut in half, the supply of bitcoins entering the market is reduced while the demand increases, thus outstripping supply. This is what scarcity is all about and has been considered to be the reason behind the price surges that happened during previous halvings.

Compared to past cycles, however, this year’s halving looks different because of the increased mainstream Bitcoin adoption, and the enhanced institutional interest that the asset has seen recently. According to investors’ speculations, the reduced supply growth could result in a substantial uptick in the price of Bitcoin, especially since many institutions and investors are seeing Bitcoin as a store of value.

The halving event goes beyond representing a technical milestone – it is also a psychological one that strengthens Bitcoin’s deflationary nature. In today’s context of economic uncertainty, the halving event serves as a reminder that Bitcoin is designed as a hedge against inflation – a narrative that resonates with institutional and individual investors alike, boosting speculative demand before the halving takes place.

However, it’s worth noting that the halving drew mixed reactions, as not everyone believes this event lifts crypto. Some in the Bitcoin community rarely see the halving as a big deal, as they believe other factors may drive market cycles, such as macro factors and liquidity. Others, on the other hand, think it is a mix of both the halving and different things happening in the market.

While no one knows for sure how things will turn out weeks from now, it’s clear that for miners, this event was discouraging, having paved a battlefield where only the fittest will survive.

Embracing potential opportunities while also remaining cautious

2024 looks bright, generating a lot of enthusiasm among investors. The price rally resulting from Bitcoin-based ETFs launch, along with the Ethereum-based ETF approval, are two significant events that point to a bull market that will bring new opportunities to investors, continuing to transform the crypto industry. But it’s worth noting that even if Bitcoin price skyrockets, it doesn’t necessarily mean that it will stay high for a long time.

By nature, Bitcoin is volatile, and a new bull run won’t change that, no matter how positive everything looks at the moment. Sure, it’s a good idea to prepare for any opportunities that may arise, as they could indeed be huge. But also, don’t get so caught up in the enthusiasm because you might start creating unrealistic expectations about the crypto market. Remember to invest gradually and exercise caution.

Bitcoin’s resurgence is welcomed by crypto investors who were deeply affected by the past events in the crypto industry, where they suffered losses due to the collapse of major crypto exchanges. While that is understandable, it’s always best to remember those events as lessons to take things with a grain of salt and be prepared for whatever may come by employing the fundamental rules of crypto investing(for example, only to invest as much as you can afford to lose, and to do your own research whenever you want to make a decision).

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