Bitcoin’s Stunning Climb to New Records, Explained in Charts
Robust flows into new spot bitcoin funds are one of the primary catalysts of the rally
Bitcoin prices soared to a new record Tuesday for the first time in more than two years, a rally that has defied the expectations of analysts and investors.
The largest cryptocurrency by market value, bitcoin briefly crossed $69,000, surpassing its prior all-time high of $68,990.90 from Nov. 10, 2021, according to Dow Jones Market Data. It recently traded at about $65,100, but remains up about 54% so far this year.
The momentum has largely caught analysts and investors by surprise. Bitcoin prices crashed through much of 2022 when hedge fund Three Arrows Capital, lender Celsius and exchange FTX collapsed one after the other. By the time FTX filed for bankruptcy in November 2022, bitcoin traded just above $16,000. Prices were hovering around $23,000 a year ago and ended 2023 near $40,000.
Analysts scrambling to pinpoint a catalyst for the rally point to robust flows into the new exchange-traded funds holding bitcoin. The “spot” ETFs, which were approved by U.S. regulators in January, allow everyday investors to buy the digital asset through their brokerage accounts, without having to go to a crypto exchange or to funds that track bitcoin’s price through futures contracts.
Some crypto bulls point to bitcoin’s upcoming “halving” as another driver. The adjustment, which happens every four years, cuts in half the number of bitcoin that can be unlocked by miners. The theory is that the halving would limit the supply of bitcoin, making it more of a store of value.
These charts explain bitcoin’s rise and where it may go next:
Bitcoin’s rise has pushed the market capitalization, or the dollar value of all cryptocurrencies, past $2 trillion for the first time since late 2021. Bitcoin alone makes up half of that sum.
Its rebound over the past year has been gradual. After the failures of Silicon Valley Bank and Signature Bank sparked fears of a larger banking crisis, bitcoin crept back up toward $30,000. The token is considered by some to be a store of value independent of the financial system and therefore a safer asset in times of crisis.
Bitcoin was stuck in a relatively narrow trading range until late August when a federal appeals court ruled that the Securities and Exchange Commission had to reconsider asset manager Grayscale’s application for an ETF holding bitcoin.
That led some traders to bet that such vehicles would be approved, kick-starting bitcoin’s climb.
Since January when the funds started trading, investors have plowed more than $15 billion into the nine newly launched spot bitcoin ETFs. BlackRock’s fund is responsible for more than $7 billion of that sum.
“I’ve been surprised by the volume of inflows we’ve seen,” said Alex Thorn, head of research at crypto asset manager Galaxy Digital. “Wall Street is getting involved. The ETFs are a clear marker.”
Despite the inflows, the outlook remains murky for at least one of the funds. Clients have pulled more than $8 billion from the Grayscale Bitcoin Trust, bringing its assets under management to $28 billion after bitcoin’s price appreciation.
For years, Grayscale pitched investors on buying its shares ahead of its eventual conversion to an ETF. That means some of the crypto companies that went bankrupt in 2022 are sitting on shares that will likely be sold as their bankruptcy cases move through the courts. That could lead to further outflows.
Bitcoin’s rally has coincided with a surge in riskier assets across markets. Growing optimism that the economy will stave off a recession and the Federal Reserve will soon pivot to cutting interest rates has propelled major stock indexes to repeated highs to kick off 2024. And a frenzy over artificial-intelligence technology has turbocharged the rally in recent days.
Crypto-related stocks and other tokens have been along for the ride. Shares of Coinbase Global have surged about 35% this year. Coinbase serves as the custodian for most spot bitcoin ETFs. It is also listed as the custodian on most applications by asset managers in the race to launch ether ETFs.
MicroStrategy, a software intelligence firm that has transformed itself into a bitcoin-buying entity, has jumped about 99%. The company, led by bitcoin advocate Michael Saylor, now holds 193,000 bitcoin worth more than $13 billion.
Whether the rebound has legs is an open question. Bitcoin’s history has been marked by sharp rallies and deep crashes, often with little news driving them.
One sign that the ETF excitement might not be the primary driver of the rally? Net buying of bitcoin is largely happening on one offshore exchange, said Clara Medalie, director of research at crypto-analytics firm Kaiko.
Most of the activity has occurred on Binance and started in late February, with seemingly little catalyst, she said.
“It suggests it’s probably not U.S. based,” Medalie said. “Why now and what is it tied to?”