Unraveling Bitcoin’s Rally: The Forces Driving It Past $50,000
A pattern of boom and busts characterizes Bitcoin’s price history, cycling between peaks and valleys roughly every four years. In November 2021, it reached an all-time high of nearly $69,000 before plunging into a bear market in 2022, losing over 75% of its value to hit $15,759.
Since the beginning of 2023, Bitcoin has been slowly recovering from what many consider its longest crypto winter. By the end of 2023, it had surged over 150%, setting the stage for a potential bull run in the new year, with sentiment on the rise and capitulation in the rearview mirror.
Fueling this resurgence is the approval of new Bitcoin exchange-traded funds (ETFs) by the Securities and Exchange Commission. Wall Street’s acceptance of Bitcoin, once viewed as obscure internet money, has lent the cryptocurrency a new level of legitimacy. ETF approvals have led to an influx of approximately $125 million daily, with firms like BlackRock, Fidelity, and ARK Invest purchasing historic amounts of Bitcoin.
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Outpacing Bitcoin Production
As of Feb. 15, ETF sponsors have acquired 251,888 bitcoins, equivalent to around 3.4% of the maximum supply of 21 million coins. These ETFs are outpacing Bitcoin production, with approximately 900 new coins mined daily. BlackRock alone purchased 10,004 Bitcoin on Feb. 13, exceeding the daily production rate by 11 times.
The unprecedented demand from ETFs, combined with Bitcoin’s cyclical price nature, has driven its price upward. The upcoming halving in April, which will reduce miner rewards by half, could further boost prices. Historically, Bitcoin’s price has surged more than 120% in halving years due to reduced supply and increased demand. With ETFs accumulating coins at record rates, Bitcoin’s upward momentum may continue through 2024.
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“This data underscores considerably stronger profitability in the mining sector compared to challenges experienced in 2022 and part of 2023.”
In approximately six months, Bitcoin undergo a “halving,” reducing the new bitcoins awarded to miners by half. Satoshi Nakamoto introduced this event in 2009 as an anti-inflationary measure. Occurring roughly every four years, the lead-up to halvings traditionally proves the most profitable time for crypto investors. “Buying bitcoin six months before a halving and selling 18 months after has historically outperformed a ‘buy and hold’ strategy,” affirms the analyst.
Bitcoin mining explained.
Bitcoin Mining is the industry where the largest institutional party BlackRock is betting big and has recently become majority shareholder in four of the five largest mining companies.
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