Why is Bitcoin Rising? The recent launch of Bitcoin Exchange-Traded Funds (ETFs) has injected a new dynamic into the cryptocurrency market, particularly evident in the fantastic rise in trading volumes experienced this week. Retail traders, in particular, are using these ETFs to tap from Bitcoin’s recent rise, which saw the cryptocurrency exceed the $60,000 barrier for the first time since November 2021.
BTC Demand from New Bitcoin ETFs Seems Insatiable
The iShares Bitcoin Trust (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC), among others, have generated trading volumes that are significantly above forecasts, suggesting robust demand from investors wishing to participate in Bitcoin’s price swings indirectly through regulated financial instruments.
The surge in trading volumes of Bitcoin ETFs like IBIT and FBTC highlights a considerable retail interest in cryptocurrency investments, helped by the simplicity and regulatory compliance of ETFs. With IBIT’s trading volume more than doubling its previous high and FBTC also establishing new records, it’s evident that these financial instruments are becoming a popular method for retail traders to acquire exposure to Bitcoin’s price action. The ETFs’ success, closely reflecting Bitcoin’s price trajectory, has not only verified its tracking effectiveness but also indicated the growing interest among investors in cryptocurrency-related products.
The enthusiasm for Bitcoin ETFs and their contribution to the cryptocurrency’s bullish price pressure is also reflected in the general increase in the market valuation of these products. As Bitcoin’s value has soared nearly 30% since the ETFs’ introduction, the funds themselves have witnessed a comparable uptick in their price, culminating in a huge spike this week.
Not all Bitcoin funds have followed this trend, as indicated by the persistent outflows seen in the Grayscale Bitcoin Trust (GBTC), as investors shift away from the higher fees levied by GBTC and transfer to cheaper competitors. However, the underlying story remains one of a solid bullish mood towards Bitcoin. These funds have not only democratized access to Bitcoin investments but have also added a layer of bullish price pressure by directing fresh cash into the market, strengthening Bitcoin’s upward price trajectory amidst growing public acceptance.
Upcoming Halving Fuels Fire
The imminent Bitcoin halving event, projected to take place in April, is further boosting the positive atmosphere surrounding Bitcoin, adding an additional layer of excitement to the cryptocurrency market. Bitcoin halvings, which usually occur every four years, cut the reward for mining new blocks by half. This occurrence significantly reduces the rate at which new Bitcoins are generated and placed into circulation, acting as a counter-inflationary mechanism by design. As earlier halving has traditionally followed large bull runs in Bitcoin’s price, investors and market onlookers alike are watching the upcoming halving with hopeful anticipation, contributing to the existing bullish atmosphere.
There is a solid theoretical relationship between supply and demand in economics and the halving’s impact on Bitcoin’s price. By half the block reward, the rate of fresh supply entering the market slows down, while demand, presumed constant or increasing, begins to outstrip the slowing supply. This scarcity effect has been a primary force behind the price spikes following prior halvings. Given the growing widespread adoption of Bitcoin and more considerable institutional interest compared to previous cycles, the April halving is particularly important. Investors are betting that the slower supply increase might lead to a significant uptick in Bitcoin’s price, especially as more investors and institutions regard it as a digital store of wealth.
Moreover, the halving event is not merely a technical milestone but also a psychological one, strengthening Bitcoin’s value proposition as a deflationary asset. In the wake of global economic instability and inflationary pressures in fiat currencies, Bitcoin’s halving serves as a reminder of its designed scarcity and potential as a hedge against inflation. This narrative resonates with both individual and institutional investors, boosting bullish sentiment and speculative demand ahead of the halving.
In the Bear Market, Builders Built
Bitcoin is experiencing a technological revolution with innovations like Orders, Stamps, BRC-20 tokens, and Layer 2 protocols, including Lightning Network, Mercury Layer, Chaumian E-Cash, Liquid Network, and Rollups. These technologies improve Bitcoin’s usability, scalability, and optimistic sentiment. These technologies are making Bitcoin a more adaptable digital asset by addressing transaction speed, cost, and scalability.
Ordinals and Stamps have developed a new method for embedding data in Bitcoin transactions, allowing the creation of NFTs and other digital artifacts on the blockchain. This concept has allowed artists, innovators, and developers to use Bitcoin for digital ownership and asset production, bringing new users to the Bitcoin ecosystem. Bitcoin gains value and utility by minting NFTs on its blockchain, increasing its position in the competitive crypto market.
Tokenized assets and smart contracts on Bitcoin and BRC-20 revolutionized Bitcoin’s financial utility. The Decentralized Finance on Bitcoin’s blockchain might generate significant wealth, making it a more appealing investment beyond its original use. With Layer 2 solutions like the Lightning Network, Bitcoin is becoming more accessible and practical for everyday transactions and micro-payments, expanding its popularity and use cases.
Additionally, Layer 2 protocols like Lightning Network, Mercury Layer, Chaumian E-Cash (Cashu, Fedimint), Liquid Network, and Rollups address Bitcoin’s scaling issues. These protocols enable faster, more efficient transactions and increase Bitcoin’s capacity, creating a more resilient and scalable blockchain infrastructure. The promise of anonymity, increased transaction throughput, and lower costs make Bitcoin more appealing to users and developers. As these technologies mature and acquire use, they are expected to spur Bitcoin ecosystem innovation and investment, reinforcing Bitcoin’s bullish outlook.
Conclusion
Finally, a bullish argument for Bitcoin relies on more than just the introduction of the ETFs. Another factor propelling demand is the expectation of the April Bitcoin halving, which will emphasize the asset’s scarcity. There is still a way to go before Bitcoin’s full potential is realized, even while developers and open-source enthusiasts are laying the groundwork for expanded usage and value.
