The virtual currency is delivering some tangible financial returns
Bitcoin is experiencing a rapid surge, nearing its all-time high, and displaying a remarkable 8% climb to $67,310 on Monday. This marks a substantial increase from its $44,000 valuation at the beginning of the year, with just a narrow gap of less than $2,000 from surpassing its November 2021 record peak of approximately $69,000.
The driving force behind this remarkable rally is attributed to the growing demand for spot bitcoin exchange-traded funds (ETFs). These ETFs provide investors with a less risky means of participating in the cryptocurrency market, contributing to a significant influx of cash throughout the year.
Analysts suggest that investors are recognizing Bitcoin as an uncorrelated asset, making it highly appealing for portfolio diversification. Joel Kruger, a market strategist at LMAX Group, emphasized this point, stating, “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 enable investors to gain direct exposure to Bitcoin without the need to hold the actual cryptocurrency. Unlike regular bitcoin ETFs, where bitcoin futures contracts serve as the underlying asset, spot bitcoin ETFs have bitcoins as their underlying asset. Managed by firms issuing shares based on their bitcoin holdings, acquired from other holders or authorized cryptocurrency exchanges, these shares are listed on traditional stock exchanges.
The U.S. Securities and Exchange Commission (SEC) approved the sale of spot bitcoin ETFs in January, leading to a significant inflow of funds. According to Bloomberg, investors have deposited around $7.35 billion into the 11 available funds. Major institutional investors such as BlackRock and Fidelity Investments now offer spot bitcoin ETFs.
Bitcoin’s price rally had commenced months earlier in 2023, reaching a 19-month high of approximately $41,000 in December. Analysts attributed this surge to three main factors: anticipation of the SEC’s approval of spot ETFs, expectations of Federal Reserve rate cuts, and the upcoming halving event, which reduces the reward for mining bitcoin.
Despite this ongoing surge, experts caution that Bitcoin remains a volatile asset. Laila Maidan, an investing correspondent at Insider, emphasized this point, stating, “It doesn’t mean the crypto is going to skyrocket and stay high. It’s still volatile, and there’s a lot of people who will always trade it.”
Nonetheless, Bitcoin’s resurgence brings relief to crypto investors, many of whom witnessed a significant decline in asset values in 2022 following the collapse of FTX and other crypto exchanges. As the world’s largest cryptocurrency in terms of trading volume and mining, Bitcoin is often regarded by financial analysts as a barometer of the overall health of the crypto industry.
