May 20, 2024

The True Drivers Behind Bitcoin’s Astonishing Ascent Explained

The True Drivers Behind Bitcoin's Astonishing Ascent Explained

In the realm of cryptocurrency, Bitcoin’s spectacular surge to over $34,000 has stolen the spotlight. While ETF anticipation plays a role, we dig deeper into the factors propelling this crypto phenomenon.

Bitcoin’s Resilient Rally

Bitcoin (BTC) has defied expectations in 2023, surging over 100% despite the challenges of 2022. While ETF buzz has been a driving force, there’s more to this story than meets the eye.

ETF Excitement, But Is It the Whole Story?

ETF speculations did spur Bitcoin’s surge, but it’s not just about waiting for regulatory approvals. The crypto world witnessed two ETF-related rollercoasters: first, a false tweet about BlackRock’s spot ETF approval, and then, a fleeting sighting of the IBTC ticker on DTCC’s website. Bitcoin rallied, then retraced, but remarkably, it has stayed close to its high.

Bitcoin: A Safe Haven

Analysts suggest that Bitcoin is increasingly viewed as a safe-haven asset. Government spending and rising debt levels, volatile stock and bond markets, and Bitcoin’s dwindling supply all contribute to this perception. The world’s leading asset managers are now praising Bitcoin as a ‘flight to quality,’ especially amid concerns over fiat currency devaluation and global geopolitical tensions.

Charles Edwards, founder of Capriole Investments, emphasized this shift, stating, “You couldn’t ask for more.”

The New Normal

The crypto landscape has evolved, leaving many surprised at the so-called ‘new’ old normal. A spiral of debt, dwindling confidence in banks and governments, and repricing of risk-free rates have created an environment favorable for alternative wealth and money creation. In this context, Bitcoin’s appeal as an uncorrelated asset gains prominence.

Bitcoin Shines in Uncertain Times

Hedge fund giant Paul Tudor Jones advocated for both gold and BTC as attractive investments. With geopolitical risks and growing U.S. debt levels making stocks a tricky choice, an uncorrelated asset like Bitcoin becomes an appealing diversification option.

Banking Woes and Bitcoin’s Rise

The troubles in the banking world have historically led people to seek refuge in Bitcoin. In 2020, Bitcoin experienced a 13% gain and a 48% rise in active Bitcoin addresses when the People’s Bank of China intervened during a regional banking crisis. The recent crisis in the Chinese shadow banking system may have played a similar role.

Supply Shock and Long-Term Holders

Bitcoin’s price surge has been amplified by historically illiquid markets and an all-time high amount of Bitcoin held by long-term investors. Nearly 70% of Bitcoin’s supply hasn’t moved in a year, and 30% of outstanding tokens haven’t changed hands in five years. This has created a supply shock, as a minimal influx of new funds can result in substantial price swings.

Jeff Dorman, Chief Investment Officer at Arca, noted, “We all underestimated just how underinvested investors are in digital assets, and how little new money is needed to cause significant swings in price.”

While ETF anticipation has played its part in Bitcoin’s remarkable journey, it’s evident that the cryptocurrency has evolved into much more than a speculative asset. It’s now seen as a hedge in times of macroeconomic uncertainty and a shelter in the face of evolving geopolitical landscapes. Bitcoin’s resurgence is emblematic of the shifting tides in the world of finance.