Bitcoin is on the cusp of an all-time high, its latest rally fuelled by the launch of the first U.S. bitcoin futures exchange-traded fund that investors think could make the cryptocurrency accessible for swathes of new investors.
But the advent of cryptocurrency ETFs in the world’s biggest economy hasn’t been the only driver of this chapter of bitcoin’s 2021 rollercoaster. Here’s a look at dynamics of its push towards a record high.
1. WILD SWINGS CONTINUE
Bitcoin is known for wild price swings, its 13-year history peppered by vertiginous ascents and equally steep drops.
Its performance this autumn has been no different. The world’s biggest cryptocurrency has soared more than 60% since mid-September, gaining more than 46% in October alone.
Yet it has also seen dramatic plunges this year. After powering to its current record of $64,895 in mid-April, bitcoin slumped by more than half in just 35 days, with a crackdown by China on cryptocurrencies among the factors.
Among the primary reasons for its rally in recent weeks, analysts said, were bets that U.S. regulators allowing the first bitcoin futures ETF would open the path for greater investment by both retail and institutional investors.
Tony Sycamore of City Index said such products “will open up exposure to bitcoin to a large segment of investors who have a brokerage account and are comfortable buying stocks and ETFs, but do not desire to go through the hassle and learning curve of establishing another account with a cryptocurrency provider”.
2. INFLOWS RISE AGAIN
Yet even ahead of the new ETF launching, inflows to existing bitcoin exchange-traded funds and products were growing sharply.
Average weekly flows to bitcoin funds totalled $121.1 million in October, up from $31.2 million a month earlier, data from London-based CryptoCompare shows. They had fallen into negative territory for the three months before, the outflows following bitcoin’s sharp losses in May and June.
“We had a pretty steep sell-off for bitcoin in the summer. The price action has been a recovery from a low,” said Sui Chung, CEO of CF Benchmarks, a crypto indexes provider.
“Bitcoin was just seen as cheap - anything below $30,000, drew a lot of investors, and particularly institutional ones.”
3. INFLATION HEDGE?
With inflation rising in many large economies, investors are increasingly betting that major central banks will as a result raise rates. Against that backdrop, some market players say, bitcoin’s purported inflation-proof qualities have also driven recent gains.
Since the start of July, bitcoin has gained almost 85%. Some inflation hedge assets have done better, with inflation-linked bonds - the U.S. TIPS Index - gaining more than 140%. Gold is flat over the same period.
“We could see higher interest rates straining global equity markets,” said Joel Kruger at crypto exchange LMAX Digital. “Bitcoin’s going to be very well supported on this longer-term store value proposition, and on this hedge against inflation proposition.”
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