Bitcoin
What’s Driving Bitcoin’s Rise? Experts evaluate.
Bitcoin is in tears.
The largest cryptocurrency has soared more than 20% in the last four days, approaching an all-time high. In contrast, the S&P 500 fell slightly during this period.
On Wednesday, the price of bitcoin surpassed $64,000 for the first time since November 2021.
The increase is mainly due to an explosion of investment in bitcoin ETFs, a new investment vehicle approved by the Securities and Exchange Commission last month, analysts told ABC News. That initial burst of gains, they added, triggered a stampede of investors fearful of missing out on returns.
“It’s been a wild ride,” Katie Stockton, founder of market research firm Fairlead Strategies, told ABC News.
A bitcoin ETF (exchange-traded fund) allows investors to purchase an asset that tracks the price movement of bitcoin, while avoiding the inconvenience and risk of purchasing the cryptocurrency itself.
For example, an ETF for gold allows individuals and institutions to invest money in the price movement of the precious metal, rather than having to purchase, transport and store the physical item.
A bitcoin ETF, in turn, gives investors access to the cryptocurrency market without facing the technical impediments and fees associated with browsing a crypto exchange.
Shortly after the SEC approved the new investment option, a number of bitcoin ETFs became available, including offerings from traditional firms like Fidelity and Franklin Templeton.
New crypto alternatives have generated billions of dollars in investment within weeks, Bryan Armour, director of passive strategies research at financial firm Morningstar, told ABC News. The top nine bitcoin ETFs have received a combined total of $10 billion as of last month, Armor said.
“There was a very successful launch for virtually all of these ETFs,” Armor said. “It’s crazy to be on the market for seven weeks.”
When investors put their money into a bitcoin ETF, the funds in turn buy bitcoin, increasing demand for the cryptocurrency and potentially causing a jump in price, Armor added.
Since bitcoin ETFs were approved on January 10, the price of bitcoin has soared 30%.
“There was significant trading volume,” Armor said.
In this Jan. 9, 2024, file photo, Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), is shown at SEC headquarters in Washington, D.C. Bloomberg via Getty Images, FILE
The rally in recent weeks has given rise to an additional wave of investment as traders witnessed the initial rise in prices and looked to jump on board, said Fairlead Strategies’ Stockton.
For about a week in mid-February, the price of bitcoin hovered in a “narrow range” of about $51,000, Stockton said, adding that when it surpassed that threshold on Monday, the new highs fueled optimism. and a wave of investments.
“The acceleration we’ve seen over the last four days has been really explosive,” Stockton said.
Despite the dizzying pace of gains in recent weeks, some analysts have warned about bitcoin’s past volatility and the possibility of an imminent price plateau, or even a crash.
Immediately after the approval of the bitcoin ETF, for example, the price of bitcoin fell 15% before recovering, Armor said. Over the past five years, he added, bitcoin has plummeted more than 40% on four separate occasions.
“Investors can expect the value to rise substantially or fall by half,” Armor said. “Nothing can happen.”
James Butterfill, head of research at digital asset management firm CoinShares, acknowledged concerns about the rapid rise in bitcoin’s price, but also pointed to reasons for optimism.
“When you see the price go up so dramatically, it always worries you a little bit,” Butterfill told ABC News. “Is it sustainable?”
However, Butterfill notes that the price rise coincided with a period of stubbornly high interest rates, suggesting that the jump in demand owes little to excess cash looking for a place to land.
“It’s not crazy speculation,” Butterfill said. “There is a genuine demand for it.”