Bitcoin surges to record highs driven by supply-demand dynamics and ETF success

In a surge reminiscent of Bitcoin’s past volatility, the cryptocurrency’s ascent to a record high is fueled by a supply-demand imbalance. The introduction of US exchange-traded funds (ETFs) triggered a rally, with demand exceeding what long-time holders are willing to sell. Bitcoin’s recent 13% leap to $63,968 marks its first venture above $60,000 since November 2021. The success of ETFs from BlackRock and Fidelity, combined with an upcoming supply reduction (halving) and renewed market optimism, propels Bitcoin’s value, outperforming traditional assets and sparking FOMO-driven buying. Observers caution against potential sharp corrections amid high leverage.

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By David Pan and Sidhartha Shukla

At the heart of the rally that is pushing Bitcoin toward a record high is a simple tenet of economics: supply and demand.

Demand for the token from new US exchange-traded funds is outstripping the amount of Bitcoin that long-time holders are willing to sell. That ignited the crypto market and attracted momentum-hungry traders, spurring speculators to close bearish bets as leveraged wagers on more gains multiply.

A wild 24 hours for the cryptocurrency market saw Bitcoin jump as much as 13% on Wednesday to $63,968 — its first trip above $60,000 since November 2021 — before paring some of the gains to trade at $62,535 as of 6 a.m. Thursday in London. Along the way, leading US digital-asset exchange Coinbase suffered outages as traffic surged before eventually restoring services. 

Bitcoin has jumped over 40% already this year atop the successful debut of the US ETFs, which directly hold the token. The batch of funds from the likes of BlackRock Inc. and Fidelity Investments went live on Jan. 11, wooing net inflows of about $7 billion to date. At current levels, the token is in sight of its pandemic-era record of $68,991.85, a bullish outpost amid wider caution in global markets due to pared back expectations for looser monetary policy.

Bitcoin ‘Halving’

An upcoming reduction in Bitcoin’s supply growth — the so-called halving — is adding to the upbeat sentiment even as debate continues about just how much impact the event really has on the price outlook. 

“Optimism around Bitcoin is being driven by a few factors working together: the spot BTC ETF inflows in the US, the upcoming reduction of new Bitcoin issuance known as the halving, and overall renewed optimism around the crypto asset class as a whole,” said Jonathon Miller, managing director of the Kraken Australia digital-asset exchange.

Bitcoin has more than tripled in value since the start of last year, climbing back from a 64% plunge in 2022. That’s a remarkable comeback from a series of scandals and bankruptcies that had raised questions about crypto’s viability.

“It’s pretty nuts,” said Ryan Kim, head of derivatives at digital-asset prime brokerage FalconX.

Beating Stocks

Bitcoin has outperformed traditional assets like stocks and gold in 2024, providing a locus of volatility for traders seeking opportunities.

The inflows into Bitcoin ETFs have prompted industry watchers to warn of a supply squeeze. Some 80% of Bitcoin’s supply hasn’t changed hands in the past six months. The nine new spot ETFs have more than 300,000 Bitcoin, or seven times the amount of new coins mined since Jan. 11. 

After the halving, expected in late April, the number of new coins mined daily will decline to 450 from 900 currently. If demand stays constant, advocates are predicting that the price has room to rally. 

“We are starting to see a pretty clear FOMO kind of rally,” said Zaheer Ebtikar, founder of crypto fund Split Capital. “More and more people are just convinced to buy.”

The speed of the advance has some observers warning of the boom and bust cycles that have become emblematic of crypto. For instance, Bitcoin slid below $15,500 about a year after achieving its record high in November 2021.

“This move has been very sharp, leverage is very high at the moment, as implied by derivatives basis and funding rates, so I would not be surprised by a sharp correction” of 20% or more, said Jaime Baeza, founder at crypto hedge fund AnB Investments. “Nonetheless, I would not be shorting into this rally while it continues to move at this pace.” 

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