Achieving a new peak price might just be the beginning for this soaring cryptocurrency. The cryptocurrency market has been experiencing significant growth since mid-October, expanding from a market cap slightly over $1 trillion to surpass $2.2 trillion by the end of February.
While the overall crypto market still falls short of its all-time high close to $3 trillion, established cryptocurrency Bitcoin (BTC 0.78%) is swiftly approaching its previous peak price of around $69,000 set on November 10, 2021.
Here’s why making a strategic investment before it establishes a new all-time high could be a wise move.
Growing Demand, Thanks to ETFs The value of cryptocurrencies like Bitcoin is heavily influenced by the principles of supply and demand. When demand outpaces supply, prices tend to rise.
In January, the SEC approved several new Bitcoin spot ETFs, marking a significant shift in the market. Unlike previous Bitcoin funds, these newly approved ETFs can directly hold Bitcoin instead of relying on derivatives. This change opens doors for more investors to enter the Bitcoin market, particularly making it easier for institutional investors and those saving for retirement in IRAs or 401(k)s to gain exposure to Bitcoin. The approval of these ETFs has considerably increased the potential demand for Bitcoin.
Although the initial weeks post-ETF approvals didn’t witness a substantial surge in Bitcoin demand from these funds, recent weeks have seen a shift. The Grayscale Bitcoin Trust, one of the ETFs, experienced significant outflows initially due to its relatively high expense ratio. However, with the selling pressure easing in recent weeks, net inflows into all Bitcoin ETFs have started to grow rapidly, accumulating over $6.7 billion since their approval on January 11.
Slower Supply Growth on the Horizon Conversely, the growth in Bitcoin supply is expected to decelerate in the near future. The upcoming Bitcoin “halving” in April will reduce the block reward from 6.25 Bitcoin to 3.125 Bitcoin. This means miners will receive fewer Bitcoin for the same amount of work, leading to a slowdown in the rate of Bitcoin supply growth. If this slowdown in supply growth continues to outpace demand, it could drive the price higher.
Historically, Bitcoin has experienced bull runs corresponding to the three previous halvings in its history. Many anticipate that the upcoming halving will have a similar impact on the market.
Potential Federal Reserve Influence Should the Federal Reserve decide to lower interest rates, the appeal of lower-risk investments like Treasury bonds may diminish. Investors could shift their funds towards riskier assets, including stocks and cryptocurrencies.
Although the Fed has not yet initiated interest rate cuts, the market has already responded positively to the suggestion of potential rate cuts in 2024. Both stocks and the cryptocurrency market have seen substantial increases. While the Fed has hinted at the possibility of maintaining higher rates for an extended period, market expectations are still pricing in three or four rate cuts this year. If rates decline more rapidly, it could fuel additional demand for Bitcoin. In the long term, investors may anticipate further reductions in rates, drawing more individuals towards riskier assets.
These three catalysts could propel Bitcoin well beyond its all-time high. While we are still a bit away from establishing a new record, the present moment presents a favorable opportunity for investment.
