It's hard to believe, but after a remarkable increase at the beginning of 2024 Bitcoin (CRYPTO:BTC) is within striking distance of a new all-time high. Bitcoin rose nearly 25% in a matter of days, hitting a 52-week high of nearly $53,000 on Thursday.
While several factors are responsible for the recent increase, two in particular stand out. That’s why Bitcoin crossing $50,000 is just a sign of what’s to come.
Image source: Getty Images.
A pattern of boom and bust
Looking back at Bitcoin's price movements over the years, a clear pattern emerges. After reaching new highs, it plunges into a prolonged and brutal bear market. These cycles appear to occur approximately every four years.
During the previous cycle, Bitcoin reached its all-time high of almost $69,000 in November 2021. Then, as quickly as it rose, Bitcoin slipped into a bear market in 2022, falling to just $15,759.
But since the start of 2023, Bitcoin has slowly emerged from what some analysts believe to be the longest crypto winter in its 15-year history. All in all, 2023 ended with an increase of more than 150%.
Now a new year begins and Bitcoin is preparing for another bull run. Just like in previous cycles, capitulation has run its course and the mood is renewed day by day.
A new type of buyer is entering the market
The Securities and Exchange Commission's approval of new Bitcoin exchange-traded funds (ETFs) also contributed to the refreshed sentiment. Wall Street's acceptance of the original cryptocurrency, long desired by the Bitcoin community, is seen by many as an unofficial sign of legitimacy that signals that Bitcoin is no longer viewed as just an obscure form of internet money.
While the hype surrounding ETF approvals has undoubtedly contributed to Bitcoin's resurgence, their real impact is only now becoming apparent. Data shows that an average of $125 million has flowed into the ETFs daily in just over a month. To keep up with demand, the companies that back these ETFs, such as: BlackRockFidelity and ARK Invest embarked on a buying spree of historic proportions.
The story goes on
As of February 15, Bitcoin ETF sponsors have purchased a whopping 251,888 Bitcoins. BlackRocks iShares Bitcoin Trust (NASDAQ:IBIT) leads with 109,609. Combined, these ETFs now own about 3.4% of Bitcoin's maximum supply of 21 million coins.
What happened last month is unlike anything before in Bitcoin’s history. These ETFs simply buy Bitcoins faster than they are produced. On average, about 900 are mined and brought to market every day. On February 13th, BlackRock alone purchased 10,004 Bitcoin. That's eleven times the production rate of Bitcoin.
As with any asset whose supply is exceeded by demand, the price of Bitcoin is bound to rise. While the cyclical nature of Bitcoin's price likely plays a role in the recent rise, its new home on Wall Street is proving far more impactful.
What investors should expect next
As explosive as the last few months have been for Bitcoin, the price rise could continue. In April, it will be halved for the fourth time – reducing the rewards miners receive for validating transactions on the blockchain by half. Halvings are hardwired into Bitcoin’s code and occur approximately every four years. They play a fundamental role in Bitcoin's monetary policy as they reduce the cryptocurrency's inflation rate.
Historically, the price of Bitcoin has increased by more than 120% in the years a halving has occurred, as demand competes for a smaller supply of new coins. However, this halving could be particularly explosive as ETFs are buying at historic prices.
After the halving, the number of Bitcoins entering the market daily will drop to around 450. If ETF operators continue to accumulate tens of thousands of Bitcoins every day, don't be surprised if Bitcoin maintains its momentum through 2024.
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RJ Fulton holds positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
“Explaining Bitcoin's Rally: What Catapulted It Beyond $50,000” was originally published by The Motley Fool
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