Bitcoin is skyrocketing, inching closer to its all-time high. On Monday, it surged 8% to $67,310, significantly surpassing its $44,000 value at the year’s outset and coming within $2,000 of its November 2021 peak of about $69,000.
What’s behind this surge? Observers in the cryptocurrency sphere point to increasing demand for spot bitcoin exchange-traded funds (ETFs). These ETFs offer a less risky entry point into crypto, attracting substantial investments this year.
Investors are recognizing bitcoin’s potential as an uncorrelated asset, making it a compelling option for portfolio diversification, explained Joel Kruger, a market strategist at digital currency exchange LMAX Group.
Spot bitcoin ETFs provide direct exposure to bitcoin without the need to hold the cryptocurrency. Unlike traditional bitcoin ETFs, where bitcoin futures contracts serve as the underlying asset, spot bitcoin ETFs hold actual bitcoins. Managed by firms that issue shares backed by their own bitcoin holdings, these ETFs are listed on conventional stock exchanges.
Exchange Commission
In January, the U.S. Securities and Exchange Commission gave the green light for the sale of spot bitcoin ETFs. Since then, investors have poured approximately $7.35 billion into the 11 available funds, as reported by Bloomberg on Monday. Notably, some of the biggest institutional investors globally, such as BlackRock and Fidelity Investments, now provide spot bitcoin ETFs.
Bitcoin’s price surge began months earlier in 2023, reaching a 19-month peak in December at around $41,000. Analysts attributed this surge to three key factors: anticipation of SEC’s approval for spot ETFs, expectations of Fed rate cuts, and the approaching halving event, reducing mining rewards by half.
However, as Laila Maidan, an investing correspondent at Insider, cautioned in December when Bitcoin surpassed $41,000, its highest value in 19 months, the ongoing surge doesn’t diminish its volatility. Maidan pointed out, “Just because the cryptocurrency is surging now doesn’t guarantee it will continue to rise and remain at high levels.”
Nevertheless, Bitcoin’s resurgence brings relief to crypto investors, many of whom witnessed asset value plunges in 2022 following the collapse of FTX and other crypto exchanges. Being the world’s largest cryptocurrency in terms of trading volume and most mined, Bitcoin often serves as a barometer of the crypto industry’s overall health, according to financial analysts.