WELLINGTON – Bitcoin has jumped more than 140 per cent in 2023 to outstrip other investments like stocks and gold, and optimism for further gains is high.
Its stellar performance comes after a turbulent period for the token.
Following a crash in cryptocurrencies in 2022, FTX founder Sam Bankman-Fried is now in jail for fraud, while top exchange Binance and its founder Zhao Changpeng recently pleaded guilty to US anti-money laundering and sanctions violations and were hit with fines of US$4.3 billion (S$5.7 billion) and US$50 million, respectively.
Is Bitcoin’s return to the US$40,000 level a sign the industry is maturing and another bull run is under way, or will the token be derailed again?
Here is all you need to know:
Why did Bitcoin just hit a 19-month high of almost US$41,000? The token has rebounded on expectations the United States Federal Reserve will cut interest rates and hopes of greater demand from exchange-traded funds (ETFs).The last time Bitcoin was at this level was in April 2022 – before the TerraUSD stablecoin collapse.
The industry is waiting for the outcome of applications from the likes of BlackRock to roll out the first US spot Bitcoin ETFs.Bloomberg Intelligence expects a batch of such funds to win regulatory approval by January.
And there is another factor driving the price: Bitcoin halving, which is due to happen in 2024.More on that shortly.
What’s a spot Bitcoin ETF? It is much like any other ETF, but it invests directly in Bitcoin.
That will be a first for the US, which to date offers ETFs investing in Bitcoin futures rather than the spot market for the asset.
It means investors get direct exposure to the current market price of the token.
And what is Bitcoin halving? It is where the amount of tokens that Bitcoin miners receive as reward for their work is cut in half.
The event happens every four years and is part of the process of capping Bitcoin supply at 21 million tokens.
The coin hit records after each of the last three halvings.
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Optimists point to the drive to curb questionable practices and the flurry of ETF applications as a sign the industry is maturing, and that there’s potential for a wider investor base for digital assets.
Meanwhile, investors are increasingly convinced the Fed is done with rate hikes, which has fuelled a rally across global markets.
But a reset in rate bets or unexpected snarls for the planned ETFs could yet derail Bitcoin.Some technical chart patterns, like the weekly relative-strength index, signal “overbought” conditions.
What do the experts say? Mr Michael Novogratz, the founder and chief executive of Galaxy Digital Holdings, predicts that Bitcoin is poised to reach its former peak a year from now.
Bitcoin reached a high of almost US$69,000 in November 2021, before retreating 64 per cent in 2022.
Once the Bitcoin ETF starts trading, Mr Novogratz said that billions of dollars should flow into the ETF space within the first year, if not more.
Of course, not everyone is a fan.
Mr Charlie Munger, Berkshire Hathaway’s vice-chairman who died last week aged 99, called Bitcoin “noxious poison” and warned that digital assets were “partly fraud and partly delusion”.
“That’s a bad combination,” Mr Munger said in a 2022 interview with CNBC.“I don’t like either fraud or delusion.
And the delusion may be more extreme than the fraud.” BLOOMBERG
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