Bitcoin’s recent surge, edging closer to its all-time high, is primarily attributed to the increasing demand for spot Bitcoin exchange-traded funds (ETFs). The digital currency experienced an 8% climb on Monday, reaching $67,310, significantly surpassing its $44,000 valuation at the beginning of the year and only a small margin away from exceeding its November 2021 record of around $69,000.
Experts suggest that the rise in Bitcoin’s value is fueled by the popularity of spot Bitcoin ETFs, providing investors with a less risky avenue for crypto investment. These ETFs allow for direct exposure to Bitcoin without the need to physically hold the cryptocurrency. Unlike conventional Bitcoin ETFs based on futures contracts, spot Bitcoin ETFs are backed by actual Bitcoins. Managed by firms, they issue shares based on their Bitcoin holdings, acquired either from other holders or authorized cryptocurrency exchanges, and these shares are subsequently listed on traditional stock exchanges.
The U.S. Securities and Exchange Commission (SEC) approved spot Bitcoin ETFs in January, leading to a substantial influx of cash into these funds. Notably, major institutional investors like BlackRock and Fidelity Investments now offer spot Bitcoin ETFs. According to Bloomberg, investors have deposited approximately $7.35 billion into the 11 available funds since the SEC’s approval.
Bitcoin’s price rally began in 2023, reaching a 19-month high of around $41,000 in December. Analysts attribute this surge to various factors, including anticipation of SEC approval for spot ETFs, expectations of Federal Reserve rate cuts, and the upcoming Bitcoin halving event, where the reward for mining Bitcoin is halved.
Despite the positive momentum, it’s crucial to recognize that Bitcoin remains a highly volatile asset. As highlighted by Laila Maidan, an investing correspondent at Insider, volatility persists even as Bitcoin broke the $41,000 mark in December.
The resurgence of Bitcoin is particularly welcomed by crypto investors who faced significant losses in 2022 following the collapse of exchanges like FTX. Being the largest cryptocurrency in terms of trading volume and mining, Bitcoin often serves as an indicator of the overall health of the crypto industry.
Some Facts About Bitcoin
- Creation of Bitcoin:
- Bitcoin came into existence in 2009, credited to an unidentified person or group using the pseudonym Satoshi Nakamoto.
- Blockchain:
- Bitcoin operates on a decentralized network known as a blockchain. This network is sustained by a community of miners.
- Limited Supply:
- The total supply of Bitcoin is capped at 21 million, establishing it as a deflationary asset. This scarcity concept is akin to precious metals like gold.
- Mining Process:
- New Bitcoins are generated through a process called mining. Miners utilize powerful computers to solve complex mathematical problems, validating and adding transactions to the blockchain.
- Halving Events:
- Roughly every four years, miners’ rewards for validating transactions undergo a halving. This deliberate measure controls the pace at which new Bitcoins are created.
- Volatility:
- Bitcoin is renowned for its high price volatility. Fluctuations occur over short periods due to factors such as market demand, regulatory changes, and macroeconomic trends.
- Pseudonymous Transactions:
- Bitcoin transactions are pseudonymous. While wallet addresses are visible on the blockchain, user identities in transactions remain indirectly linked.
- Use Cases:
- Initially designed as a peer-to-peer electronic cash system, Bitcoin is often regarded as “digital gold” and a store of value. It serves purposes like cross-border transactions, remittances, and investment.
- Legal and Regulatory Landscape:
- Bitcoin’s legal status varies globally. Some countries fully embrace it, while others impose restrictions or bans. Regulatory developments significantly impact its acceptance.
- Popular Adoption:
- Bitcoin is accepted as payment by various merchants and businesses. It has also become a preferred investment for both individual and institutional investors.
- Wallets:
- Bitcoin is stored in digital wallets, which can be software-based (online, desktop, mobile) or hardware-based (physical devices). Private keys are essential for managing Bitcoin holdings.
- Open Source Development:
- Bitcoin’s code is open source, allowing global developers to contribute to its enhancement. Changes to the protocol require consensus among network participants.