Bitcoin Surges as Demand for Spot ETFs Skyrockets
Bitcoin, the world’s most prominent digital token, has soared to new heights, climbing 8% to $67,310 on Monday. This surge brings it well above its $44,000 valuation at the beginning of the year and within striking distance of its November 2021 record high of around $69,000.
What’s behind this remarkable rally? Cryptocurrency experts attribute bitcoin’s surge, in part, to the increasing demand for spot bitcoin exchange-traded funds (ETFs). These ETFs, which offer investors a less risky way to invest in crypto, have seen a massive influx of cash this year, fueling bitcoin’s ascent.
Joel Kruger, a market strategist at digital currencies exchange LMAX Group, explained, “Investors are getting turned on to the fact that bitcoin can be treated as an uncorrelated asset, which makes it extremely attractive for portfolio diversification.”
Spot bitcoin ETFs allow investors to gain exposure to bitcoin without actually holding the digital token. Unlike regular bitcoin ETFs, which are based on futures contracts, spot bitcoin ETFs hold actual bitcoins as their underlying assets. These ETFs are managed by firms that issue shares backed by their own bitcoin holdings, acquired from other holders or authorized cryptocurrency exchanges.
The approval of spot bitcoin ETFs by the U.S. Securities and Exchange Commission in January has been a game-changer. Since then, investors have poured approximately $7.35 billion into the 11 different funds available. Notably, some of the world’s largest institutional investors, including BlackRock and Fidelity Investments, now offer spot bitcoin ETFs.
Bitcoin’s price rally actually began months earlier in 2023, reaching a 19-month high of about $41,000 in December. Analysts attribute this surge to several factors, including anticipation of the SEC’s approval of spot ETFs, expectations of Federal Reserve rate cuts, and the upcoming halving event in the bitcoin mining process.
However, despite bitcoin’s impressive price surge, its inherent volatility remains a concern. As Laila Maidan, an investing correspondent at Insider, noted, “It doesn’t mean the crypto is going to skyrocket and stay high. It’s still volatile, and there are a lot of people who will always trade it.”
Nevertheless, bitcoin’s resurgence is welcome news for crypto investors, many of whom suffered losses in 2022 following the collapse of FTX and other crypto exchanges. As the leading cryptocurrency, bitcoin’s performance is closely watched as a barometer of the overall health of the crypto industry.
According to Markus Thielen, head of research at 10x, bitcoin is poised to reach an all-time high this week. Thielen pointed to bullish signs, including a significant decline in bitcoins held on exchanges and the launch of spot ETFs by BlackRock in Brazil.
In summary, bitcoin’s remarkable rally underscores the growing mainstream acceptance and adoption of cryptocurrencies, propelled by the increasing availability of spot bitcoin ETFs and growing institutional interest. As bitcoin continues to make headlines, its impact on the broader financial landscape is undeniable, marking a significant milestone in the evolution of digital assets.