- Bitcoin is rapidly rebounding towards an all-time high of $69,000.
- The last time cryptocurrencies reached their current levels, interest rates were close to zero.
- The current imbalance between supply and demand is diminishing the prospects for long-term interest rate increases.
Bitcoin has enjoyed a long recovery to levels last seen when interest rates were near zero and pixelated artwork was regularly sold for millions of dollars.
Bitcoin soared more than 5% on Monday, topping $66,000 for the first time in nearly three years. It is within reach of its all-time high of $69,000. Ether, Solana, Dogecoin, and other tokens are also rallying. In February, the value of the cryptocurrency market returned to $2 trillion for the first time since April 2022.
This retest of highs comes against headwinds that interest rates are likely to remain high for an extended period of time. Markets are holding off on expectations for rate cuts as inflation continues and the economy shows little sign of slowing.
The previous rally was driven by low interest rates that encouraged speculative activity. When the Federal Reserve began raising interest rates to curb high inflation, that momentum disappeared, and Bitcoin plummeted to $16,000 less than a year after setting the record.
Currently, cryptocurrencies are still increasing in rate and are rising with no clear path to pull back.
What gives?
Larry Tentarelli, chief technical strategist at Blue Chip Daily, told Business Insider that “even though expectations for a Fed rate cut have subsided, there is no threat of a rate hike right now.” is on the rise,” he added.
There are also demand and supply imbalances that appear to outweigh policy concerns.
While a spate of Bitcoin ETF approvals is driving demand and retail interest, the market is bracing for the Bitcoin halving, when miners' rewards will be reduced and daily issuance will be cut in half.
Halvings occur approximately once every four years, in 2020, 2016, and 2012. In the 12 months following the past three halvings, Bitcoin has risen 8,069%, 284%, and 559%. The event has put pressure on supply to slow the rate at which new bitcoins enter the market, making this year's halving come at a time when demand is surging.
Tentarelli and other market experts say the emergence of Bitcoin ETFs is a “tremendous phenomenon” for crypto demand, as they allow more investors to gain exposure without having to buy the tokens outright. It is pointed out that this is a “promoting factor”.
Weekly inflows into digital investment products reached $1.84 billion last week, the second-largest on record, according to CoinShares data released on Monday. Of those inflows, 94% went to Bitcoin products. The trading volume of investment products reached a record of over $30 billion during the same period.
ETFs from Wall Street giants like BlackRock and Fidelity invest directly in Bitcoin, creating more and more available supply.
According to a CoinDesk report in February, the month after the ETF approval, 11 funds held 192,000 Bitcoins. This number is in addition to the 420,000 held by Grayscale, which converted a Bitcoin trust into an ETF, and the approximately 200,000 held by MicroStrategy.
Standard Chartered predicts that ETF inflows could push Bitcoin prices to $200,000. Tom Lee of Fundstrat has an even more bullish prediction, saying the cryptocurrency could reach $500,000.
Lee said in a recent interview that with the approval of a Spot Bitcoin ETF, “supply is finite and now demand could increase significantly,” adding, “So within five years “I think the dollar is potentially achievable.”
