Bitcoin, the world's most popular cryptocurrency, reached a new milestone on Wednesday, surpassing the $60,000 mark for the first time in more than two years. The digital currency has soared by 42% in February, its best monthly performance since December 2020, when it nearly touched $70,000.
The rally was driven by a combination of factors, including the launch of new US spot bitcoin exchange-traded products (ETPs), the anticipation of the upcoming halving event in April, and the expectation of lower interest rates from the Federal Reserve.
ETPs are investment vehicles that track the price of an underlying asset, such as bitcoin, and trade on regulated exchanges. They offer investors a convenient and regulated way to gain exposure to the cryptocurrency market, without having to deal with the technical and security challenges of owning and storing the tokens themselves.
According to data from LSEG, the three largest bitcoin ETPs, run by Grayscale, Fidelity, and BlackRock, saw a surge in trading volumes this week, indicating a growing demand for crypto assets among institutional and retail investors. On Monday and Tuesday, around 110 million shares in the top three ETPs changed hands, about 51% of the 215 million shares traded in the market's most valuable companies - Apple, Microsoft, and Nvidia¹.
Another factor that boosted bitcoin's price was the anticipation of the halving event, a process that occurs every four years and reduces the rate at which new bitcoins are created. The halving is designed to limit the total supply of bitcoins to 21 million, making the currency more scarce and valuable over time. The next halving is expected to take place in April, and many investors are betting that it will trigger a new wave of price appreciation.
Additionally, the prospect of the Federal Reserve cutting interest rates later this year has increased the appeal of bitcoin as an alternative store of value and hedge against inflation. With traditional assets offering low or negative returns, many investors are looking for higher-yielding or more volatile options, such as bitcoin.
The value of all the bitcoins in circulation has topped $2 trillion this month for the first time in two years, according to crypto platform CoinGecko². Bitcoin's market capitalization now exceeds that of some of the world's largest companies, such as Amazon, Facebook, and Tesla.
Bitcoin's dominance in the crypto market has also increased, reaching 66% of the total market capitalization of all cryptocurrencies, according to CoinMarketCap³. The second-largest cryptocurrency, ether, has also performed well, rising by 47% in February to $3,353⁴.
However, bitcoin's rally is not without risks and challenges. The cryptocurrency is still subject to high volatility, regulatory uncertainty, and security breaches. Some analysts have warned that bitcoin could face a correction or consolidation after its rapid ascent, as investors may take profits or switch to other assets.
Moreover, bitcoin faces competition from other cryptocurrencies and technologies that may offer faster, cheaper, and more scalable solutions. For instance, the Ultrahuman Ring AIR, a smart ring that can store and transfer cryptocurrencies, is expected to launch in July, along with the Samsung Galaxy Ring, a smart ring that can monitor health and well-being⁵.
Bitcoin's future will depend on its ability to maintain its innovation, adoption, and network effects, as well as to overcome the technical and regulatory hurdles that may arise. For now, however, bitcoin seems to have captured the attention and imagination of investors around the world, as it continues to break new records and defy expectations..
