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The price of bitcoin traded above $50,000 on Monday for the first time since 2021, underscoring the sharp change in appetite for the token since mainstream bitcoin investment funds launched earlier this year.
The industry’s flagship cryptocurrency has gained almost 15 per cent since the start of the year, largely driven by the US Securities and Exchange Commission reversing a decade-old policy to approve several spot bitcoin exchange traded funds, vehicles offering investors exposure to the price of bitcoin through a regulated product.
Many of Wall Street’s biggest names have offered spot bitcoin ETFs, including BlackRock, the world’s largest asset manager. But despite widespread anticipation over their launch the price of bitcoin fell roughly 15 per cent in the days following the SEC’s approval.
The token’s recent surge to $50,000 — more than double the level at which it stood a year ago — follows evidence that the ETFs are bringing new money into the market and represents an opportunity for bitcoin to turn a corner for the long run, analysts said.
“Following a disappointing launch of several bitcoin ETFs we’re now seeing continued inflows into newly issued funds, and I think we’re seeing much more organic demand for bitcoin as a result,” said James Butterfill, head of research at crypto investment group CoinShares.
After the initial waves of inflows into new spot bitcoin ETFs and outflows from Grayscale Investments’ converted product, asset managers are turning their attention to the long-term investment case for bitcoin ETFs.
According to data shared by CoinShares, the newly approved bitcoin ETFs have pulled in roughly $3bn in net flows, even after more than $6bn was pulled out of Grayscale’s product since its first day of trading as an ETF.
As crypto offerings continue to penetrate the world of traditional finance, issuers are optimistic that mainstream investors will eventually allocate a small percentage of their portfolios to products such as bitcoin ETFs alongside traditional exposure to stocks and bonds.
“I think it’s something where you’ll start to see a specific allocation to that over time with the longer track record,” said Tim Huver, managing director on the US ETF services team at Brown Brothers Harriman. “I think we’ll see increasing adoption and interest in that space.”
“We’ve been saying to clients one of the most important things is understanding the value of getting off zero,” added Kathy Kriskey, senior alternatives ETF strategist at Invesco, which partnered with Galaxy Digital to launch a bitcoin ETF last month. Investors could start by taking 1 per cent from their equity exposure and reallocating it to bitcoin, she said: “I think in the conversations with analysts right now, that idea of going from zero to 1 per cent is palatable.”
The crypto industry has also been buoyed by hope that it has survived its toughest regulatory punishments and scandals. In November Binance — the world’s largest exchange — paid a $4.3bn fine to US authorities over charges related to money laundering and the violation of international sanctions.
Optimism over bitcoin has further increased amid expectations that central banks will lower interest rates this year, making risk assets more attractive to investors. In April, the network that bitcoin runs on will also slow the circulation of available bitcoins, a scheduled update that the market expects will support further gains for the flagship cryptocurrency.
However, other analysts are less convinced that bitcoin will sustain its recent upward trajectory.
“I’m sure the bitcoin [bulls] will say the world is waking up to the reality of bitcoin, but given how nebulous the bitcoin ecosystem is, it’s hard to tell who’s buying and why,” said Jim Angel, faculty affiliate at Georgetown McDonough’s Psaros Center for Financial Markets and Policy. “The price of bitcoin will always fluctuate violently based on the number of true believers that want to buy, and the number of sceptics that want to sell,” he added.
“If you monitor chatter about bitcoin’s value, online almost all of it is short-term technical analysis and there are almost no points made about its fundamental value,” Angel said.