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Bitcoin hits a new all-time high near $69,000 before collapsing
Bitcoin (BTC-USD) hit an all-time high on Tuesday before falling as some investors locked in their winnings.
A new frenzy surrounding the world’s largest cryptocurrency pushed the price to $68,869, surpassing the previous high of $68,789 set on November 10, 2021. It then collapsed back below the $60,000 level in a matter of hours.
The new high bolstered a notable comeback for bitcoin after a 2022 crash that created huge losses for investors and triggered the downfall of several big industry players, including cryptocurrency exchange FTX and its founder Sam Bankman-Fried .
The dramatic retreat from Tuesday’s high was a reminder of how much volatility still surrounds this digital asset. At one point it was down 11%, the kind of decline last seen during the tumult of 2022.
So far this year, bitcoin has ridden a wave of enthusiasm triggered by a series of spot bitcoin exchange traded funds which began trading in January. These funds gave everyday investors broad exposure to the digital asset, triggering anticipation of a record-breaking year.
To know more: With Bitcoin near $69,000, does it deserve a place in your portfolio?
“The demand for these ETFs has far exceeded anyone’s expectations,” Matt Hougan, chief investment officer at Bitwise Asset Management, told Yahoo Finance. Bitwise was among the firms that got the green light from the Securities and Exchange Commission to operate one of these funds.
Several money managers predict that the digital asset could surpass $100,000 by the end of 2024.
Investors are also bidding up other cryptocurrencies and related stocks. Ether (ETH-USD), the second largest cryptocurrency, has outperformed bitcoin by more than 7% since the beginning of the year. Several so-called meme coins, such as dogecoin (DOGE-USD), Shiba Inu (SHIB) and dogwifhat (WIFE) – are also increasing.
One sign of the new mania surrounding bitcoin is the ETF trading activity launched in January. They raised nearly $8 billion from investors in just two months, with the lion’s share going to Wall Street heavyweights like BlackRock (BLK) and Fidelity Investments.
This activity has been a boon to major cryptocurrency trading venues, including Coinbase (CURRENCY) and Robinhood (HOOD). Coinbase is the cryptocurrency custodian for a number of these ETFs and earns fees tied directly to these products.
THE exchange request on Coinbase was so busy last week that it resulted in an issue where some customers showed $0 balances in their accounts for part of a day. CEO Brian Armstrong assured customers that their funds were safe.
The story continues
Some individual customers reported seeing zero balances in their accounts again on Monday.
Brian Armstrong, CEO of Coinbase. (Brendan McDermid/REUTERS) (REUTERS / Reuters)
Supply and demand
There is also a fundamental law of economics at play in the new market frenzy Surrounding Bitcoin: Supply and Demand. The new demand from ETFs means that on average more bitcoins are purchased every day than new coins are created.
The new ETFs have bought a daily average of 3,320-4,300 coins since early February, three analysts working for cryptocurrency managers said last week.
This is significantly higher than the 900 coins created daily by the Bitcoin network over the same period.
Further supply problems for bitcoin are expected this year in light of the “halving” expected 46 days from Monday.
When it was created in 2009 by pseudonymous developer Satoshi Nakamoto, bitcoin was programmed with a fixed supply schedule that was halved every four years.
After the next denomination, the so-called halving, the daily supply of new coins will be 450 instead of 900.
“We are potentially in the best position right here,” Mark Connors, head of research for crypto asset manager 3iQ, told Yahoo Finance. “We cannot produce more bitcoin to meet demand.”
This year, Connor’s firm set its mid-to-high price target for Bitcoin at between $160,000 and $180,000. Next year, he predicts an eye-popping goal of between $350,000 and $450,000 per coin.
Another money manager, VanEck, set an $80,000 2024 price target for bitcoin last quarter.
“These estimates are certainly a little stale now,” said Matthew Sigel, head of digital asset research for VanEck.
There are certainly other factors at play in the current supply crisis beyond demand for ETFs.
An example: according to data collected by 21Shares, the US government has seized 215,000 BTC since 2020. The stash includes seizures in various seizures, such as the 2016 hack of cryptocurrency exchange Bitfinex.
The fact that they are currently simply being held back and not sold has limited supply. But that could change when the government needs to distribute some of the sum to victims, which could mean selling it.
As asset prices rise, many institutional buyers will also need to take profits to maintain the balance of their portfolios. This could also impact the supply-demand imbalance.
There are also certainly less fundamental and more psychological factors driving this new rally, including the fear of missing out.
Interest in bitcoin among the general U.S. population is far from its peak compared to past rallies, Alex Thorn, head of research for Galaxy Digital, said by email Monday.
According to Thorn, searches for “bitcoin” on Google and retail usage of crypto apps remain well below levels seen during the last bull market.
“We haven’t even begun to reach the heights that we are likely to reach,” Thorn added.
David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrencies and other areas of finance.
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