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What’s driving bitcoin’s surge? The experts intervene.
Bitcoin he is in tears.
The largest cryptocurrency has risen more than 20% over the past four days, nearing an all-time high. In contrast, the S&P 500 fell slightly over that period.
On Wednesday, the price of bitcoin surpassed $64,000 for the first time since November 2021.
The surge mainly comes from the explosion of investments in Bitcoin ETFs, a new investment vehicle approved by the Securities and Exchange Commission last month, analysts told ABC News. That initial burst of gains, they added, triggered a stampede of investors fearful of missing out on returns.
“It’s been a wild ride,” Katie Stockton, founder of market research firm Fairlead Strategies, told ABC News.
A bitcoin ETF (exchange-traded fund) allows investors to purchase an asset that tracks the price movement of bitcoin, avoiding the inconvenience and risk of purchasing the cryptocurrency coin itself.
For example, a gold ETF allows individuals and institutions to bet on the price movement of the precious metal, instead of having to purchase, transport and store the physical object.
A bitcoin ETF, in turn, offers investors access to the cryptocurrency market without dealing with the technical hurdles and fees associated with navigating a cryptocurrency exchange.
Soon after the SEC approved the new investment option, a number of bitcoin ETFs became available, including offerings from legacy firms like Fidelity and Franklin Templeton.
New crypto alternatives have freed up billions of dollars in investments in just a few weeks, Bryan Armour, director of passive strategies research at financial firm Morningstar, told ABC News. The nine major bitcoin ETFs have received a combined $10 billion since last month, Armor said.
“There has been a very successful launch for almost all of these ETFs,” Armor said. “It’s just crazy for seven weeks on the market.”
When investors put their money into a bitcoin ETF, the funds in turn buy bitcoin, increasing demand for the cryptocurrency and potentially causing the price to rise, Armor added.
Since bitcoin ETFs gained approval on January 10, the price of bitcoin has skyrocketed by 30%.
“There was significant trading volume,” Armor said.
In this January 9, 2024 file photo, Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), is shown at SEC headquarters in Washington, D.C. Bloomberg via Getty Images, FILE
The rally in recent weeks gave rise to a further wave of investment as traders saw the initial spike in prices and looked to get on board, said Stockton, of Fairlead Strategies.
For about a week in mid-February, bitcoin’s price hovered in a “tight range” of around $51,000, Stockton said, adding that when it crossed that mark on Monday, new highs fueled optimism and a wave of investments.
“The run-up we’ve seen over the last four days has been really explosive,” Stockton said.
Despite the breakneck pace of gains in recent weeks, some analysts have warned about bitcoin’s past volatility and the possibility of an imminent price plateau, or even slowdown.
In the period immediately following the approval of the bitcoin ETF, for example, the price of bitcoin fell 15% before rebounding, Armor said. In the last five years, he added, bitcoin has fallen by more than 40% on four different occasions.
“Investors could expect a substantial increase or a decline by half,” Armor said. “Anything could happen.”
James Butterfill, head of research at digital asset management firm CoinShares, acknowledged concern about the rapid rise in bitcoin prices, but also pointed to reasons for optimism.
“When you see the price go up so dramatically, you always worry a little bit,” Butterfill told ABC News. “Is it sustainable?”
However, Butterfill notes that the price surge has coincided with a period of stubbornly high interest rates, suggesting that the increase in demand has little to do with excess liquidity looking for a place to land.
“It’s not wild speculation,” Butterfill said. “There’s a real demand for it.”