In March, Bitcoin surged past its previous all-time high at $69,000 (RM 327,060) reaching a new high of $73,738 (RM 349,518). As a casual cryptocurrency enthusiast for more than 7 years, I have, of course, been watching and observing this meteoric phenomenon.
So, what’s propelling Bitcoin to such dizzying heights on the 14th of March? As with most things in the world of finance, economy, and cryptocurrency, the answer is not so straightforward. But here’s my take anyway.
DISCLOSURE: I have a small stake in Bitcoin, Ethereum, and Solana. So, I might be a little bit biased. This article is not investment advice and they are just highlighting my experience and observation in the crypto-space. As always, do your own research before investing in anything.
Institutional Investors Join The Action
On the 10th of January 2024, the US Securities Exchange Commission (SEC) approved 11 Bitcoin Spot ETFs. This is a huge moment in Bitcoin history as this signals the US acceptance of Bitcoin and cryptocurrency as a legitimate and valid investment vehicle.
What is a Bitcoin Spot ETF?
ETFs or Exchange Traded Funds is a collection of securities (stocks, bonds, commodities, etc.) that tracks the underlying index. Bitcoin Spot ETF tracks the price of Bitcoin, giving investors exposure to the price swings of Bitcoin.
These ETFs are owned by large investment firms such as BlackRock, ARK Invest, and Grayscale. These firms bought the Bitcoins from crypto exchanges and offered to investors the ETF that tracks the price of those Bitcoins.
Link to 11 Approved Bitcoin Spot ETF.
What this means is that Bitcoin can now be traded as easily as a stock in the stock market and traditional investment firms are now embracing Bitcoin as part of their investment portfolios.
The Bitcoin Spot ETF was in the works for more than a decade but previously, it was rejected due to the fear of market manipulation and money laundering.
However, with the existence of the Bitcoin Futures ETF and the push to better regulate the cryptocurrency space, the Bitcoin Spot ETF was finally approved last January.
Bitcoin Spot ETF is different from the previously approved Bitcoin futures that are essentially just contracts to buy and sell the contracts when Bitcoin achieves a certain price, without actually having to own the Bitcoin itself.
Bitcoin Spot ETF requires the owner of the ETF to actually buy the Bitcoin in the ETF.
The approval of Bitcoin Spot ETF allows every average Joe and institution to get in on the action without the complexities and risks of owning Bitcoin directly.
To put it into perspective, imagine there is a Bitcoin ETF traded in Bursa, and all the whales like KWSP, LTAT, and Khazanah Nasional are all rushing in to buy the ETF. It’s certainly going to be wild!
The Bitcoin Halving
Bitcoin halving is an event, in which after every 210,000 blocks are created, the rewards to the miners will be reduced to half. Every 10 minutes, a new block is created and connected together, forming a blockchain.
After 210,000 blocks, which roughly takes 4 years, the rewards reduce from 50 to 25. This was back in 2012. After 4 times of halving, the Bitcoin reward is now 6.25. Starting from April 20th, this reward will be reduced again to only 3.125 Bitcoin per block.
So, why did that guy, Satoshi Nakamoto choose to reduce the rewards to the miners?
This is to ensure Bitcoin is deflationary. If you imagine our fiat currency now, every time we are in a state of emergency like the covid-19, central banks can just print out more money to enter the economy. More money will stimulate spending and kick off the economy.
However, because there is now A LOT of new money, but the same productivity and goods, the value of our money will be decreasing. We now need a lot more money to buy the same thing. This is inflation. That’s why those Gardenia chocolate buns which cost 50 cents 20 years ago now cost us RM 1.10.
The deflationary currency will only increase the value of that currency because as time goes on, less and less of the currency will enter circulation, making Bitcoin more valuable.
Right now, people are rushing to own Bitcoin before the halving, because psychologically, we think Bitcoin will be worth and will be much more expensive after the halving drives the price wayyy up.
This event, combined with institutional investors now coming in part of the game, kicks the price into overdrive!
Fear of Missing Out (FOMO)
Beyond the realm of institutional investors lies the powerful force of FOMO, or the fear of missing out. When news outlets and social media are abuzz with stories of Bitcoin’s astronomical rise, it can trigger a domino effect.
Investors, both seasoned and novice, are drawn in by the potential for significant profits, not wanting to be left behind. This influx of new buyers further drives up the price, creating a self-fulfilling prophecy as news of the increasing price attracts even more buyers.
If you take a look on X and YouTube, there are a lot of Bitcoin and crypto-related tweets and videos flying around to take advantage of the bull run, further fuelling the FOMO.
A Look at the Broader Economic Landscape
Zooming out, we can see that now the US is in a low-interest rate and quantitative easing phase. investors are constantly seeking alternative assets to park their money.
Bitcoin, with its limited supply and potential for high returns, becomes very attractive. Additionally, geopolitical instability and economic uncertainty can lead investors to seek havens for their assets.
In Malaysia, our Ringgit depreciates further and Malaysian crypto savvy investors are also hedging by going into Bitcoin and gold. This also explains why gold now is also on the rise.
Future of Bitcoin: Uncharted Territory
So, what now? Where is Bitcoin going to go from now?
While the recent surge is undeniably impressive, the long-term trajectory of Bitcoin remains unknown. Some experts believe it has the potential to become a mainstream form of payment, while others maintain it’s a speculative bubble waiting to burst.
Regulations, technological advancements, and broader economic conditions will all play a role in shaping Bitcoin’s future.
However, the historical graph also shows for the last 4 halving, there is a general uptrend 1 year after the halving event. There is a high chance that we are in an uptrend now.
Conclusion
The recent surge in Bitcoin’s price can be attributed to a lot of factors. Increased institutional adoption, fueled by the search for alternative assets and inflation hedges, has played a significant role.
FOMO further amplified the upward swing, attracting a wider range of investors. Underlying macroeconomic conditions, including low interest rates and geopolitical uncertainty, have also contributed. While Bitcoin’s future remains uncertain, its recent performance has undoubtedly captured the attention of the financial world.
After the surge, Bitcoin price pulled back and as of June, they are hovering below $70,000.
As the cryptocurrency landscape continues to evolve, one thing is for sure – Bitcoin’s story is far from over.
