The Bitcoin price jumped 12 per cent on Monday. Photo / 123rf
The Bitcoin price jumped 12 per cent on Monday. Photo / 123rf
ANALYSIS
The last few days have seen a major rally in the price of bitcoin, up 30 per cent over the last week (from $45,000 to $59,000) and jumping 12 per cent on Monday alone.
While cryptocurrency markets are known for their volatility, the question always asked around a majormarket movement is - what is driving this?
Here are some current trends and upcoming events likely impacting the price of Bitcoin and moving the crypto markets more broadly.
The first big news event that we know is impacting the price is the long-anticipated announcement of a Bitcoin spot ETF. Exchange-traded funds (ETF) are a financial product in America that allows people to buy Bitcoin through investing in a managed fund - similar to a KiwiSaver product.
This means that big investors (like pension funds) will have access to the Bitcoin market for the first time.
While many companies have attempted to register a Bitcoin ETF in the past, none have succeeded. But this time it looks different and Bloomberg has the chances of a successful application this year at over 90 per cent.
In fact, one news outlet erroneously tweeted that the Blackrock ETF had been approved, sending the price of Bitcoin pumping until the tweet was corrected.
ETFs would allow hundreds of millions of investors around the world who can buy American ETF products to have access to Bitcoin as easily as they can purchase managed funds. This is expected to increase demand for crypto as an asset.
Bitcoin halving
In the world of crypto, few events generate as much excitement and hype as a ‘Bitcoin halving’ which takes place approximately every four years and is forecast to happen around April 20, 2024.
Unlike traditional currencies, which are controlled by central banks and governments, the supply of Bitcoin is programmatically limited and there will only ever be 21 million Bitcoins. When a halving event happens, the miners who operate the Bitcoin network receive less Bitcoin as a reward for their efforts. This means less new supply coming into the market which affects the classical supply and demand price curve.
he supply of Bitcoin is programmatically limited. Photo / AP
In the past, halvings have been followed by periods of increased demand for Bitcoin and price surges due to the dynamics of supply and demand.
Halving events are now widely covered and media outlets often report on Bitcoin’s price movements in relation to the upcoming halving event, further contributing to the hype and excitement within the crypto community.
Macroeconomic changes
There are growing signs from the US and European central banks that they are ending their monetary tightening cycle.
Bitcoin, like shares and other risk-on assets, has historically been stronger when the global economy is stronger and interest rates fall.
Lower interest rates make it harder to get a good return from things like cash, and it is also cheaper to borrow. So investors turn to other, higher risk assets like Bitcoin in their search for better returns.
Institutional investment
Recent data from blockchain analytics provider Chainalysis shows institutions are very active in the crypto space across multiple geographies.
This is no surprise to those in the space who have long been aware of the market cycle and the gains that having a small crypto allocation as part of a portfolio can provide.
These professional investors love asymmetric bets where they have the potential for outsized returns from small outlays. They also understand the value of having an asset that is lowly correlated to other asset classes, which allows them to hedge against market movements.
I have noticed a striking trend when I talk to banks and investment companies in New Zealand. The conversation with people often goes: “Look, the company views crypto as too risky so won’t go forward with it, but personally I have a holding”. Makes you think.
Regulation as a driver of adoption, and value
Although crypto is all about taking back financial control from central authorities, a tighter regulatory environment is not necessarily a hindrance to the industry.
A supportive regulatory environment has helped increase trust and adoption among consumers, businesses, and institutions.
This has led to increased investment and usage of cryptocurrencies, which in turn helps drive innovation and development in this space. What’s more, clear regulations that help prevent future instances of fraud and protect consumers from financial loss have further bolstered trust and confidence in the industry.
A supportive regulatory environment has also provided a level playing field for all market participants, encouraging competition and fostering growth.
Janine Grainger, chief executive of Easy Crypto. Photo / Supplied
With Crypto moving on from nascent to mainstream, there is a convergence of factors driving the Bitcoin surge in price.
Essentially, we have a market that is full of anticipation around a potential boom in crypto prices in the coming year reacting at pace when larger institutional investors and groups show any sign of laying the groundwork for scaling up their crypto holdings.
Will it hold? Only time (and the market) will tell.
Janine Grainger is the Founder and CEO of New Zealand-based cryptocurrency exchange Easy Crypto.
Disclaimer: The information provided here is of a general nature, and not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.
