Bitcoin (BTC-USD) hit an all-time high on Tuesday before falling back as some investors locked in their profits.
A new excitement around the world's largest cryptocurrency caused the price to rise to $68,869, surpassing the previous high of $68,789 set on November 10, 2021. Then it fell back below the $60,000 mark within a few hours .
The new high reinforced a remarkable comeback by Bitcoin after a 2022 crash that left investors with huge losses and triggered the demise of several major industry players, including cryptocurrency exchange FTX and its founder Sam Bankman-Fried.
The dramatic decline from Tuesday's high reminded us how volatile this digital asset still is. At one point it was down 11%, a decline last seen during the turmoil of 2022.
So far this year, Bitcoin has seen a wave of excitement sparked by a series of spot Bitcoin exchange-traded funds that began trading in January. These funds gave everyday investors comprehensive access to the digital asset and raised anticipation for a record year.
Read more: With it approaching $69,000, does Bitcoin deserve a place in your portfolio?
“Demand for these ETFs has far exceeded expectations,” Matt Hougan, chief investment officer of Bitwise Asset Management, told Yahoo Finance. Bitwise was among the firms that received the green light from the Securities and Exchange Commission to manage one of these funds.
Several asset managers now believe that the digital asset could rise to over $100,000 before the end of 2024.
Investors are also bidding higher on other cryptocurrencies and related stocks. Ether (ETH-USD), the second-largest cryptocurrency, has outperformed Bitcoin by more than 7% year-to-date. Several so-called meme coins – such as Dogecoin (DOGE-USD), Shiba Inu (SHIB) and Dogwifhat (WIF) – are also booming.
A sign of the new mania surrounding Bitcoin is the trading activity of the ETFs launched in January. They've raised nearly $8 billion from investors in just two months, with the lion's share going to Wall Street heavyweights like BlackRock (BLK) and Fidelity Investments.
The story goes on
This activity has been a boon for major crypto trading venues including Coinbase (COIN) and Robinhood (HOOD). Coinbase is the crypto custodian for a number of these ETFs and earns fees tied directly to these products.
Demand for trading on Coinbase was so high last week that a snafu occurred, with some customers showing $0 balances in their accounts for part of a day. CEO Brian Armstrong assured customers that their funds were safe.
Some individual customers reported that their account had zero funds again on Monday.
Brian Armstrong, CEO of Coinbase. (Brendan McDermid/Portal) (Portal / Portal)
supply and demand
A basic law of economics also plays a role in the new market hectic surrounding Bitcoin: supply and demand. The new demand from ETFs means that, on average, more Bitcoins are being purchased than new coins are being created each day.
The new ETFs have been buying an average of 3,320 to 4,300 coins daily since early February, three analysts who work for crypto money managers said last week.
This is significantly more than the 900 coins that the Bitcoin network creates daily during the same period.
With the “halving” set to take place 46 days from Monday, more Bitcoin supply issues are expected this year.
When it was founded in 2009 by pseudonymous developer Satoshi Nakamoto, Bitcoin was programmed with a fixed delivery schedule that halved every four years.
After this next cut, called halving, the daily supply of new coins will be 450 instead of 900.
“We may be in the best position here,” Mark Connors, head of research at crypto asset manager 3iQ, told Yahoo Finance. “We cannot produce more Bitcoin to meet demand.”
Connor's firm has set its mid-to-high price target for Bitcoin this year at $160,000 to $180,000. A staggering target of $350,000 to $450,000 per coin is expected next year.
Another asset manager, VanEck, set a price target of $80,000 for Bitcoin by 2024 last quarter.
“These estimates are now admittedly somewhat outdated,” said Matthew Sigel, head of digital asset research at VanEck.
In addition to the demand for ETFs, there are certainly other factors at work in the current supply shortage.
For example: According to 21Shares, the US government has seized 215,000 BTC since 2020. The stockpile includes seizures from various seizures, such as the hacking of the crypto exchange Bitfinex in 2016.
The fact that they are currently only held and not sold has limited supply. But that could change if the government needs to distribute some of it to victims, which may mean a sale.
When the asset price rises, many institutional buyers also need to take profits to maintain balance in their portfolios. This could also impact the imbalance between supply and demand.
There are also certainly less fundamental and more psychological factors driving this new rally, including fear of missing out.
Interest in Bitcoin across the U.S. population is far from peaking compared to previous rallies, Alex Thorn, head of research at Galaxy Digital, said by email on Monday.
According to Thorn, Google searches for “Bitcoin” and retail crypto app usage are well below levels seen in the last bull market.
“We haven’t even come close to reaching the heights that this is likely to reach,” Thorn added.
David Hollerith is a senior reporter at Yahoo Finance, covering banking, crypto and other financial areas.
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