Bitcoin (BTC) continues to defy odds and keeps coming back from the dead. After hitting lows of $16,000 in the aftermath of the FTX fiasco, the leading cryptocurrency has been clawing back losses.
Capitalizing on the approval of the spot Bitcoin exchange traded fund (ETF) in the US, BTC picked up steam in March. The token almost made it to $74,000 to set a new lifetime high.
In its analysis of on-chain activity, blockchain data company Chainalysis notes that crypto investors achieved total gains of $37.6 billion in 2023. This represents a significant recovery from 2022, which saw estimated losses of $127.1 billion. Of this, Saudi Arabia investors realized capital gains of $351 million, while UAE investors cashed out gains totaling $204 million.
But just as it seemed all was good, BTC started tumbling down again, dipping to around $65,000 in just a few sessions.
Read | Bitcoin ETFs approval: A game-changer for cryptocurrency market
Was the recent resurgence just a temporary blip, or does the rally earlier in March have legs?
“This recent rally of Bitcoin definitely has legs,” says Zachary Friedman, chief strategy officer at Secure Digital Markets. “There has been a huge influx of both institutional and retail buyers into the new BTC ETF products and the demand has not let up at all. Every day since the launch there has been new money coming into these products.”
Jesper Johansen, CEO & founder at Northstake, says the approval of the spot bitcoin ETF turns the crypto into an accredited financial product, making it far more accessible to the masses.
“Furthermore, trading Bitcoin extends into derivative markets, giving rise to more ETF options and futures options,” says Johansen. He believes this will motivate investors who are looking to diversify their portfolio through alternative assets, to engage with and allocate larger funds to digital assets. “And for this reason, the crypto industry’s ardent followers expect the value of Bitcoin to rise exponentially.”
Sustaining the rally
Bundeep Singh Rangar, CEO at Fineqia, has a more nuanced approach. He says while the ETF approval has provided a short-term boost, the long-term sustainability of this rally will depend on broader market dynamics, adoption trends, regulatory developments and macroeconomic factors.
“It’s essential to monitor how institutional adoption progresses, whether regulatory clarity improves or creates uncertainties, technological advancements in the crypto space, and how Bitcoin’s narrative evolves in the context of broader financial markets,” says Rangar.
Read: Is this Bitcoin’s finest hour?
Then there are factors like investor sentiment and market liquidity that could also influence Bitcoin’s trajectory.
On the macroeconomic front, Rangar points to the expertise of analysts who say the US inflation rate remains above 3 percent, signaling caution for the future. Despite this he says market participants are still anticipating a 50-100 bps cut by the Federal Reserve during 2024. “Historically, such actions have been viewed positively for risk-on assets like Bitcoin,” says Rangar.
However, the inflation rates turned out to be higher than expected mid-March, dimming prospects for a rate cut. This was one of the major factors for BTC to fail to touch $74,000, and start its downhill slide. It hasn’t yet found its feet, at the time of filing this article.
Coming of age
The cryptocurrency sector exists within a highly sentiment-driven environment. The market dynamics shift swiftly reacting to both favorable and adverse developments.
Our experts, however, contend that it’s time to look beyond the immediate impacts of events like the FTX fiasco and the approval of Bitcoin ETFs. They point to several broader developments in the cryptosphere that are worth monitoring for their potential to shape the industry’s future.
One of the key developments they all point to is real-world assets tokenization.
Rangar explains that tokenization is a pivotal process that converts physical assets into digital tokens, allowing for fractional ownership and improved liquidity. “This process facilitates 24/7 trading of assets that were previously illiquid, providing investors with increased flexibility and accessibility to a variety of investment opportunities,” Rangar says.
Read: Crypto school: What is tokenized Bitcoin?
Tokenization, he contends, will enhance market efficiency and transparency, and will further lower barriers of entry.
Lee Taylor, founder of MonarchX, says tokenization has the potential to transform how the world invests. He says tokenization allows main street investors to participate in large-scale investments that have been out of reach for the vast majority of investors.
“Can you imagine factory workers during the Industrial Revolution having the chance to invest in a small piece of the factory in which they worked,” says Taylor. “Now, thanks to tokenization, anything of value can be tokenized and, thus, easily traded. That includes everything from power plants to factories, from rare art to diamond mines and oil reserves. Even carbon credits.”
Economics 101
Commenting on the developments in the wider cryptosphere, Friedman says the uptick in BTC has renewed interest in other cryptos as well, particularly Ethereum. He expects an Ethereum ETF to be approved later this year. This could lead to Ethereum outpace Bitcoin in terms of percentage gain.
“Also, many altcoins have also seen a lot of new money come into the space. Some will succeed, and some will fail, but the ones that succeed will see their total value locked (TVL) increase multi-fold,” says Friedman.
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He is also looking forward to BTC’s halving event coming soon. When it happens, the supply of BTC will be halved. And that is a good thing for BTC. Basic economics tells us how prices escalate when brisk demand runs into shrinking supply.
Relying on historical evidence, Rangar says BTC halving coincides with bullish momentum in the months following the event. Typically BTC cycles peak around 6 to 12 months after the halving, says Rangar.
Friedman is also excited about the supply of BTC unable to keep pace with the demand. “I’m a firm believer that we will be at $100,000 within 6-8 weeks, and should approach $200,000 by the end of this year,” says Friedman.
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