Thu, 03/07/2024 - 10:08
Many had written Bitcoin off after its latest bear market, which lasted over a year. From a high of $64,400 back in November 2021, the original crypto had fallen by more than 70% to a paltry $16,590 by New Year's Eve 2022. Amid global regulatory pressure and security concerns following the collapse of SVB and FTX, talk was circulating that this was the start of what would be a long, enduring crypto winter, and it would be years until new heights were reached. Well, flash forward just twelve months and some change, and we've already seen BTC record a new all-time high after more than a year of steady, incremental gains. That's right, Bitcoin hit a new high of $68,834 yesterday (5 March) before dipping more than 10% immediately afterwards and then settling around its current level of $67,089 (6 March).
The driving forces behind these gains have been multiple, and Bitcoin's rise has even triggered a wider crypto market revival that has seen new rallies in Solana, Avalanche and a host of other altcoins. That said, cryptocurrency investors will surely be reminded of previous boom-bust cycles and would be wise not to leave themselves too exposed, as a major correction could also be on the cards before the year is out. In this piece, we'll be looking at the positive factors with the potential to drive BTC on to ever-higher highs while also taking stock of the possible pitfalls lying ahead this year.
Nothing but good news
A cursory look at Bitcoin's fundamentals is all it takes to comprehend the unbounded optimism we're seeing for the original digital currency just now. One of the biggest developments for BTC this year has had to be the 10 January approval of eleven spot ETFs from major providers. Apart from the general interest and speculation that such a development would understandably generate among retail traders and investors, it also sparked mass buying from a variety of institutions, too. Indeed, in anticipation of the approval, 2023 saw 1 billion worth of BTC inflows from institutional investors to bring Bitcoin's market capitalisation to more than $1 trillion.
With the advent of an ETF vehicle, even more traditionally minded funds have decided to adopt Bitcoin, bolstering its pedigree as a veritable investment instrument and thus reducing volatility. While most of this will now be priced in, there's another key driver that should be able to sustain the upward trend further – Bitcoin's upcoming halving. This is predicted to occur in April 2024, when the block height reaches 840,000. Since this means that the reward for miners will fall by 50%, history suggests that prices will be required to rise to make up for the shortfall in earnings. While some of this might well already have been accounted for in recent price hikes, data from previous halvings (2012, 2017, and 2020) show significant price rises six months following the actual event.
The extent of the gains we can expect is, of course, unknown, though Alex Adelman, CEO of Bitcoin rewards app, Lolli, has predicted that BTC could top $150,000 by year's end.
Don't get carried away
Traditional cryptocurrency investors are famously no strangers to volatility, but the new breed of institutional investors have shown themselves to be much less friendly when it comes to huge price swings (in either direction). And with so much institutional cash having flown into Bitcoin in 2023 and early 2024, there's a big risk of market-moving profit-taking if fund managers begin to feel as if the gains are getting bubbly. Even traditional Bitcoin whales could decide to cash in if prices rise much higher, as the immediate 10% correction on Tuesday (05/03) showed. Indeed, more than $84 million of derivatives – most of which were long positions – were liquidated in the space of just four hours following Bitcoin's rise above $69,000.
Despite the fact that some of these losses have since been regained, this sharp movement should serve as a cautionary tale to HODLers and prospective new entrants that there is likely to be huge amounts of money rushing for the exit doors at every major leg up going forward. Another potential sign of a nascent bubble has been the growing media attention this current bull run has already garnered. With this new all-time high already having got coverage from mainstream outlets like BBC News and the Guardian newspaper, many experienced traders and investors will rightly be concerned that this could be the beginning of the end for BTC's latest bull cycle. Now, we're unlikely to see a major crash of the likes of 2022, but gains could well dry up for a lengthy period.
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