Bitcoin back at US$50,000 as ETF approval, prospect of falling interest rates drive demand for cryptocurrency

The original cryptocurrency has tripled in value since the start of last year, climbing back from a 64 per cent plunge in 2022
Latest rally driven by optimism that last month’s US approval of exchange-traded funds to own bitcoin directly is leading to greater mainstream acceptance

Bitcoin

Bloomberg

Published: 10:53am, 13 Feb 2024

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Bitcoin jumped to US$50,000 for the first time in more than two years, staging a remarkable comeback from a series of cryptocurrency industry scandals and bankruptcies that had raised questions about the viability of digital assets.

The original cryptocurrency has tripled in value since the start of last year, climbing back from a 64 per cent plunge in 2022. Bitcoin last traded at US$50,000 in December 2021. The price is still below the all-time high of almost US$69,000 reached in November 2021.

The wild price fluctuations seen since the introduction of bitcoin more than a decade ago have long been one of the main attractions to speculators. While originally promoted as an alternative to the traditional financial system, the latest rally has been driven by optimism that last month’s US approval of exchange-traded funds to own bitcoin directly is leading to greater mainstream acceptance.

“There is a lot of talk about inflow of money into this asset,” said Matt Maley, chief market strategist at Miller Tabak & Co. “I’d also note that the momentum players are getting excited as well.”

The resurgence in cryptocurrency prices comes as investors in the broader financial markets re-embrace risk amid expectations that the Federal Reserve is moving closer to easing monetary policy. Higher interest rates tend to dull the allure or riskier assets such as cryptocurrency.

“The appetite for risk has trickled over into digital assets as well,” said Chris Newhouse, a DeFi analyst at Cumberland Labs.

Shares of crypto-related companies also gained on Monday with bitcoin proxy MicroStrategy rising 10 per cent, trading platform Coinbase Global increasing 4.8 per cent and miner Marathon Digital jumping 12 per cent.

Bitcoin has recovered all its losses since the May 2022 implosion of stablecoin TerraUSD, which set in motion the wave of failures that ultimately helped bring down Sam Bankman-Fried’s FTX exchange in November 2022.

By the time FTX went down, the cryptocurrency market was already months into the rout that claimed TerraUSD, hedge fund Three Arrows Capital and lender Celsius Network. But the fall of FTX, once one of the top crypto exchanges by trading volume, was even more damaging, with token prices stagnating as liquidity dried up.

Now with Bankman-Fried convicted of fraud, and Binance co-founder Changpeng Zhao awaiting sentencing for failing to implement anti-money-laundering policies and US sanctions violations, cryptocurrency prices have moved higher as analysts see fewer looming risks to the industry.

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Nine US spot bitcoin exchange-traded funds debuted on January 11, while the more than decade-old Grayscale bitcoin Trust converted into an ETF the same day. The accessibility of ETFs promises to widen the investor base for the token. The new funds have attracted a net of about US$8 billion so far, while the more than US$6 billion outflow from the Grayscale fund since its conversion now appears to be losing steam.

“Enthusiast buyers bring in more enthusiast buyers pushing prices further up,” said Fadi Aboualfa, head of research at crypto-custodian Copper Technologies. “The cryptocurrency has momentum on the back of several green weeks and has a large chance of going up further when markets see weekly movements upwards of 10 per cent (as we saw last week).”

Optimism about the quadrennial bitcoin halving due in April is also filtering across the industry. Halving cuts the quantity of bitcoin that miners receive for operating the powerful computers that verify transactions on the blockchain. The event is often viewed as a support for prices based on historical precedent.

Aside from ETF inflows, sentiment toward bitcoin is “typically positive” during the Lunar New Year holidays that are currently under way in Asia, Fundstrat Global Advisors wrote in a note.

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