Surpassing the $50,000 mark for the first time in over two years, Bitcoin experienced a notable surge, propelled by anticipations of impending interest rate cuts and recent regulatory approval for U.S. exchange-traded funds designed to mirror its price. According to data from the digital asset exchange Coinbase, the world’s largest cryptocurrency has seen a 16.3% increase this year, reaching its highest point since December 27, 2021, on Monday.
The rally comes amid a broader risk-on shift in the market. Investors anticipate interest rate cuts from the Federal Reserve this year, boosting shares in banks and other financial firms that earn revenue from interest on deposits. It also coincides with growing investor optimism that the approval of bitcoin ETFs could open the cryptocurrency to more mainstream investment.
Analysts have been predicting a bullish trend for the cryptocurrency this year as investors anticipate more accessible monetary policy, a lower U.S. dollar, and increased global demand. The price surge has also come as the market is gearing up for the next Bitcoin halving event, which will reduce the number of new coins created and should trigger further buying momentum in the coming months.
While bitcoin has climbed higher this year, the crypto’s market cap is still smaller than some other currencies, such as the Japanese yen, the South Korean won, and the British pound. However, despite its relatively low market cap, bitcoin is often seen as a store of value. The cryptocurrency has remained resilient despite several setbacks, including hacking incidents and regulatory scrutiny.
Moreover, some analysts say that introducing Bitcoin ETFs deepens the ties between the volatile world of cryptocurrencies and the traditional financial system, potentially posing new risks. This is because the ETFs will not invest directly in the virtual currency but will hold and trade the underlying assets, such as physical bitcoins or derivative contracts linked to its price.
The launch of the ETFs has already triggered a rush of investor inflows into Bitcoin, which has pushed its price higher. On Monday, trading on nine spot bitcoin ETFs reached almost $9 billion in just 30 days, Bloomberg Intelligence reported. That translates to about 5% of the tradable bitcoin supply.
Matteo Greco, a research analyst at Fineqia International, attributed the bitcoin rally to an influx of investor capital from the newly launched ETFs. He said the inflows are expected to accelerate as more investors take advantage of the new opportunities the ETFs provide. However, he cautioned that the price may correct below the $50,000 threshold shortly.