When Bitcoin broke above $40,000 for the first time since May 2022, it shattered a long-running spell of slumps. Investors were smitten with the cryptocurrency. However, the rally is an outlier in that it is riding a wave of momentum on broad enthusiasm about U.S. interest rate cuts and as traders bet on the imminent approval of U.S. stock market-traded bitcoin funds.
In the past year, Bitcoin has seen an epic rise and fall. Its price climbed from less than $1,000 in early 2013 to almost $16,000 in late 2016. That came after the second Bitcoin halving and a massive bull run that pushed prices above $10,000 in May 2020. However, the gains would be short-lived as a series of business failures and regulatory clampdowns saw the price fall below $10,000 by June 2020.
However, Bitcoin has bounced back this year from a low point of around $8,000. It breached the $11,000 mark in August and moved above $13,000 by October. Then, it surged to break the $20,000 barrier in December and closed the year at almost $29,000. That is a gain of more than 150%.
A 50% rally since mid-October “seems to mark a decisive shift away from the bearishness of 2022 and early 2023,” says Justin d’Anethan, head of business development for Asia Pacific at Keyrock, a digital asset market maker. He says evidence of institutional buying through November suggests the recent highs will probably hold.
The current surge has also been driven by the prospect of approving several ETFs that would allow investors to trade shares in crypto. The most prominent is the Grayscale Bitcoin Trust, which has been given the go-ahead to convert its popular stablecoin into an ETF in the United States. The move could see as much as $10 billion in assets flow into the cryptocurrency, pushing the price higher.
Crypto-related stocks are also rising in tandem with the rally. Coinbase Global (COIN) and MicroStrategy (MSTR) jumped 9% ahead of the open, with the former having risen more than 150% this year.
The broader markets have also been on fire in recent weeks, with riskier assets such as gold and emerging markets gaining sharply as investors bet the Federal Reserve has finished raising rates and will start cutting in early 2024. That has lifted interest in assets farther out on the risk spectrum, such as Bitcoin, attracting bets from those who believe the Fed’s move will also propel its price. It is a sign that the “Crypto Winter” that threw the world of digital currencies into disarray at the beginning of the year may finally be over. It is too soon to say whether it will last, but the rally offers a glimpse of hope. This article was written by Bloomberg News’s Emily Chang and Caroline Mauron and edited by Jason Leung.