Bitcoin Rally Explained: Why It Surpasses $50,000
It may be hard to believe, but after a noticeable surge starting in 2024, Bitcoin (BTC 0.51%) It’s within striking distance of an all-time high. Bitcoin has risen nearly 25% in just a few days, reaching a 52-week high of about $53,000 on Thursday.
There are a number of factors behind the recent rise, but two stand out in particular. Here’s why Bitcoin hitting $50,000 is just a sign of things to come.
Image source: Getty Images.
Patterns of boom and bust
If we look back at Bitcoin’s price movements over the past few years, a clear pattern emerges. After hitting new highs, we enter a long and brutal bear market. This cycle appears to occur approximately every four years.
During the previous cycle, Bitcoin reached an all-time high of nearly $69,000 in November 2021. Bitcoin then entered a bear market in 2022 as soon as it rose. It lost over 75% of its value and at one point fell to $15,759.
But since early 2023, Bitcoin has slowly emerged from what some analysts believe is the longest cryptocurrency winter in its 15-year history. When all was said and done, 2023 was up more than 150%.
A new year has begun and Bitcoin is gearing up for another bull market. As has happened in past cycles, surrender has run its course and sentiment is renewing itself with each passing day.
A new type of buyer enters the market.
It was also refreshing that the Securities and Exchange Commission approved a new Bitcoin exchange-traded fund (ETF). Wall Street’s long-awaited approval of the original cryptocurrency by the Bitcoin community is seen by many as an unofficial stamp of legitimacy, a sign that Bitcoin is no longer considered an obscure form of internet currency.
While the hype surrounding the ETF’s approval has undoubtedly fueled Bitcoin’s resurgence, the real impact is only just beginning to be seen. Over a little over a month, the data shows an average of $125 million flowing into ETFs each day. To meet demand, companies backing the following ETFs are: black stoneFidelity and ARK Invest have embarked on historic-scale bulk purchases.
As of February 15th, Bitcoin ETF sponsors had purchased a whopping 251,888 Bitcoins. Black Rocks iShares Bitcoin Trust (go 0.34%) It leads with 109,609. Collectively, these ETFs currently hold about 3.4% of Bitcoin’s maximum supply of 21 million coins.
What has happened over the past month has been unlike anything else in Bitcoin history. These ETFs simply purchase Bitcoin faster than it is being produced. On average, about 900 are mined and enter the market every day. On February 13, BlackRock alone purchased 10,004 bitcoins. This is equivalent to 11 times the production of Bitcoin.
Like any asset where supply is short of demand, the price of Bitcoin should rise. While the cyclical nature of Bitcoin’s price likely played a role in its recent surge, the new Bitcoin price on Wall Street has proven to be even more influential.
What Investors Should Expect Next
Price surges could continue, just as Bitcoin has exploded over the past few months. The fourth halving is scheduled to take place in April. This means that the rewards miners earn for validating transactions on the blockchain are halved. Halvings, which are built into the Bitcoin code and occur roughly every four years, play a fundamental role in Bitcoin’s monetary policy because they lower the cryptocurrency’s inflation rate.
Historically, in years following halvings, the price of Bitcoin has risen by more than 120% as demand competes with the diminishing supply of new coins. However, this halving could be particularly explosive if ETFs are buying at historical rates.
After the halving, the number of Bitcoins entering the market each day will be reduced to approximately 450. If ETF operators continue to accumulate tens of thousands of Bitcoin each day, don’t be surprised if Bitcoin maintains its momentum well into 2024.
