In a surprising turn of events, traditional institutions are channeling significant investments into Bitcoin, sparking renewed optimism among experts who believe that the cryptocurrency’s current surge to an all-time high may have more sustainable momentum compared to its 2021 peak.
On Tuesday, Bitcoin, renowned for its notorious volatility, reached an impressive $69,202. This surge was attributed to the growing anticipation surrounding new U.S. spot bitcoin exchange-traded funds (ETFs) and speculations that the Federal Reserve might initiate U.S. interest rate cuts later this year.
Given Bitcoin’s relatively brief existence as a financial asset, forecasting its price trajectory remains an intricate challenge. The cryptocurrency witnessed a crash just months after reaching its previous record in November 2021, causing significant repercussions across the entire crypto industry.
However, analysts and industry executives suggest that the current influx of long-term investments from institutions could potentially provide the necessary support for Bitcoin to sustain its heightened levels this time around.
Nathan McCauley, CEO of Anchorage Digital, a crypto platform, emphasized the shift, stating, “Traditional institutions were once sitting out; today, they are here in full force as the principal drivers of the crypto bull market.”
In February, notable instances of institutions entering the Bitcoin arena included software firm MicroStrategy’s purchase of approximately 3,000 bitcoins for $155 million and social media platform Reddit’s disclosure of acquiring small amounts of bitcoin and ether.
The influence of crypto industry giants on the market was highlighted by Steve Sosnick, Chief Strategist at Interactive Brokers, who anticipates a short-term pullback in Bitcoin’s price as investors seize the opportunity to take profits.
A significant driver of sustained investment is the introduction of 10 new U.S. bitcoin ETFs, offering a regulated option for traditional institutions and other buyers seeking a more secure avenue for cryptocurrency investment.
Bitcoin’s remarkable 50% surge this year, coinciding with substantial inflows into the new ETFs, underscores the impact of these financial products. Net flows into these ETFs reached $7.9 billion as of Monday, according to BitMex Research.
Sui Chung, CEO of CF Benchmarks, which provides the index for six of the ETFs, revealed that registered investment advisors and other major institutions were actively participating in the ETFs, attracted by Bitcoin’s core appeal of diversification potential.
Wealth manager Gerber Kawasaki’s investment in BlackRock’s spot bitcoin ETF further exemplifies this trend, with such investors being characterized as less price-sensitive, according to Bitfinex analysts.
While indicators like Google searches show muted retail interest compared to previous years, trading in CME Micro Bitcoin futures surged from 32,007 on Feb. 27 to nearly 87,000 on Feb. 28, indicating a potential retail frenzy.
Despite Bitcoin’s relatively short track record since its inception in 2008, it remains a speculative asset dominated by retail investors. Analysts caution against relying on economic fundamentals, as Bitcoin lacks them, contrasting it with commodities like gold.
Nonetheless, the role of supply dynamics cannot be ignored. Factors such as potential liquidation of bitcoins trapped in bankruptcies and the upcoming bitcoin “halving,” set to reduce supply, add layers of complexity to predicting Bitcoin’s future. Zach Pandl, Managing Director of Research at Grayscale Investments, notes that “Bitcoin demand is colliding with increasingly tight supply,” suggesting a potential upward pressure on prices.
