Bitcoin is on a vertical tear, as it continues its rapid recovery and is close to breaking its all-time high.
The digital token on Monday rose 8% to $67,310, well above its $44,000 valuation at the start of the year and $2,000 short of surpassing its November 2021 record high of about $69,000.
What fuels the rally? Cryptocurrency watchers say Bitcoin's rise is partly due to high demand for the so-called Bitcoin exchange traded funds. ETFs, which allow investors to trade cryptocurrencies in a less risky way than ever before, have attracted a massive influx of cash this year, experts said.
“Investors are turning to the fact that bitcoin can be treated as an uncorrelated asset, which makes it very attractive for portfolio diversification,” Joel Krueger, market strategist at cryptocurrency exchange LMAX Group, told CBS MoneyWatch.
An instant Bitcoin ETF allows investors to have direct exposure to Bitcoin without holding it. Unlike regular Bitcoin ETFs, in which Bitcoin futures are the underlying asset, bitcoins are the underlying asset of a Bitcoin ETF. Each Bitcoin ETF is managed by a company that issues shares of its Bitcoin holdings that are purchased through other holders or through an approved cryptocurrency exchange. Stocks are listed on a traditional stock exchange.
The US Securities and Exchange Commission approved the sale of spot bitcoin ETFs in January. Since then, investors have deposited about $7.35 billion into 11 different funds available, Bloomberg reported Monday. Some of the world's largest institutional investors, including BlackRock and Fidelity Investments, now offer Bitcoin ETFs.
Bitcoin's price rally began months before 2023: its price rose to a 19-month high in December to around $41,000. Analysts at the time attributed the rise to three main factors, including the expectation of SEC approval for spot ETFs, the expectation of federal interest rate cuts and the upcoming halving event, in which the Bitcoin mining reward is cut in half.
Bitcoin's continued rise certainly doesn't make the cryptocurrency any less volatile, Leila Medan, an investment reporter at Insider, told CBS News in December, when the cryptocurrency broke $41,000, its highest value in 19 months at the time. .
“This does not mean that cryptocurrencies will rise and stay high,” Maidan said. “It's still volatile and there are a lot of people who will always trade it.”
However, Bitcoin's resurgence comes as welcome news for cryptocurrency investors, many of whom saw the value of their assets decline in 2022 following the collapse of FTX and other cryptocurrency exchanges. As the world's largest cryptocurrency, both by trading volume and most mined, financial analysts often look to Bitcoin as a barometer of the overall health of the cryptocurrency industry.
