04 March Why is Bitcoin rising?
In unclassified
The recent introduction of Bitcoin exchange-traded funds (ETFs) has injected new dynamism into the cryptocurrency market, which is particularly evident in the notable rise in trading volumes seen this week. Retail traders, in particular, are using these ETFs to capitalize on Bitcoin's ongoing rally, which has seen the cryptocurrency breach the $60,000 mark for the first time since November 2021.
New Bitcoin ETFs seem to have an insatiable demand for Bitcoin
The iShares Bitcoin Trust (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC), among others, recorded trading volumes that far exceeded expectations, demonstrating strong demand from investors looking to participate in Bitcoin price movements indirectly through regulated financial products. .
The surge in trading volumes of Bitcoin ETFs such as IBIT and FBTC underscores the significant retail interest in cryptocurrency investments, which is facilitated by the convenience and regulatory compliance of ETFs. With IBIT trading volume doubling to its previous high and FBTC also setting new records, it is clear that these financial instruments are becoming a preferred way for retail traders to gain exposure to Bitcoin price movement. The performance of ETFs, which closely mirrors the trajectory of Bitcoin prices, not only validated the tracking efficiency, but also highlighted the growing appetite among investors for cryptocurrency-related products.
The enthusiasm for Bitcoin ETFs and their contribution to the upward pressure of cryptocurrency prices is also reflected in the overall increase in the market valuation of these funds. As Bitcoin's value has risen nearly 30% since the ETFs' approval, the funds themselves have seen a similar rise in their prices, culminating in a big jump this week.
Not all Bitcoin funds have paralleled this trend, as evidenced by the ongoing outflows seen in Grayscale Bitcoin Trust (GBTC), as investors move away from the high fees charged by GBTC and move to cheaper counterparts. However, the overall narrative remains one of markedly bullish sentiment towards Bitcoin. These funds not only democratized access to Bitcoin investments, but also added a layer of upward price pressure by directing new capital into the market, fueling Bitcoin's upward price trajectory amid growing mainstream acceptance.
The next half adds fuel to the fire
The upcoming Bitcoin halving event, scheduled to take place in April, will amplify the bullish sentiment surrounding Bitcoin, adding an extra layer of excitement to the cryptocurrency market. Bitcoin halvings, which occur approximately every four years, reduce the reward for mining new blocks by half. This event effectively reduces the rate at which new bitcoins are created and introduced into circulation, and serves as an anti-inflation mechanism by design. Since previous halvings have historically been preceded by significant upward movements in the price of Bitcoin, investors and market spectators alike are looking forward to the upcoming halving with optimistic expectations, contributing to the prevailing bullish sentiment.
The principle behind the halving effect on the Bitcoin price is fundamentally related to the economics of supply and demand. By halving the block reward, the rate of new supply entering the market slows, while demand, which is assumed to be constant or increasing, begins to exceed the slowing supply. This scarcity effect has been the main driver behind the rise in prices following previous halvings. Given the increase in mainstream adoption of Bitcoin and broader institutional interest compared to previous cycles, the halving that occurred in April was particularly notable. Investors speculate that lower supply growth could lead to a sharp rise in Bitcoin's price, especially as more investors and institutions view it as a digital store of value.
Moreover, the halving event is not just a technical milestone but also a psychological one, reinforcing Bitcoin's value proposition as a deflationary asset. In the context of global economic uncertainty and inflationary pressures in fiat currencies, Bitcoin's halving serves as a reminder of its designed scarcity and its potential as a hedge against inflation. This narrative is resonating with both retail and institutional investors, driving positive sentiment and speculative demand ahead of the halving.
During a bear market, builders were building
The Bitcoin landscape is also undergoing a transformation phase with the emergence of new technological innovations such as Ordinals, Stamps, BRC-20 Tokens, and a host of Layer 2 protocols including Lightning Network, Mercury Layer, Chaumian E-Cash, and Liquid Network. , and groups. These developments not only enhance Bitcoin's utility and scalability, but also contribute significantly to the bullish sentiment surrounding Bitcoin. By addressing challenges such as transaction speed, cost and scalability, these technologies expand the potential use cases for Bitcoin, moving it beyond a store of value to a more versatile digital asset.
Ordinals and Stamps have introduced a new way to integrate data into Bitcoin transactions, enabling the creation of non-fungible tokens (NFTs) and other digital artifacts directly on the Bitcoin blockchain. This innovation has opened new vistas for artists, creators, and developers to explore Bitcoin as a platform for digital ownership and asset creation, thus attracting a new audience to the Bitcoin ecosystem. The ability to mint NFTs on Bitcoin's blockchain adds a layer of utility and value to the network, strengthening its position in the competitive crypto space.
On the financial side, the introduction of BRC-20 tokens is set to revolutionize the utility of Bitcoin by enabling the creation of tokenized assets and smart contracts on the Bitcoin network. This move toward DeFi (decentralized finance) on Bitcoin's blockchain could unlock tremendous value, making Bitcoin a more attractive investment beyond its traditional role. Combined with second-layer solutions such as the accelerator network, which facilitate instant and low-cost transactions, Bitcoin is becoming more accessible and practical for everyday transactions and micropayments, increasing its appeal and use cases.
Furthermore, Layer 2 protocols like Lightning Network, Mercury Layer, and Chaumian E-Cash like Cashu, Fedimint, Liquid Network, and Rollups directly address Bitcoin's scalability challenges. By enabling faster, more efficient transactions and expanding Bitcoin's capacity, these protocols lay the foundation for a more robust and scalable blockchain infrastructure. The promise of enhanced privacy, increased transaction throughput, and lower fees makes Bitcoin an even more compelling choice for both users and developers. As these technologies continue to evolve and be adopted, they will likely lead to more innovation and investment in the Bitcoin ecosystem, enhancing bullish sentiment and visibility for Bitcoin's future.
a future vision
In conclusion, the launch of ETFs is just one part of the equation supporting the bullish case for Bitcoin. The expectation that the price of Bitcoin will halve in April, which underscores the scarcity of the asset, is also driving demand. While open source developers and advocates provide the foundation for increased utility and value of Bitcoin, suggesting that the full valuation of Bitcoin is still far from being achieved.
