Why is Bitcoin growing, and what will happen next?
Bitcoin continues its steady growth for the eighth week in a row. Against this market picture, researchers from K33 Research say in their new report that Bitcoin's recovery to past all-time highs could happen "much faster" than expected.
Halving
The main driver of growth, most analysts believe, is investors' anticipation of halving — a planned reduction in new bitcoins issued by miners. This event will cause the inflow of new tokens to the market to halve, creating an additional deficit.
Bitcoin has already had three successful halving events, each of which provoked the market to set a new price high. It is reasonable to expect a similar scenario for the fourth time. No one can give exact figures for the latest price record, but the upward trend in price is evident against the background of the shortage of tokens on the free market.
Bitcoin-ETF
Another critical factor in the price growth is the expectation of launching spot ETFs on cryptocurrencies. Investors are understandably expecting multiple growths of bitcoin after the approval of ETFs for crypto-assets from the spot market because such a fund will have to buy a massive volume of coins from the market, which will inevitably cause an artificial deficit.
The expected inflow of funds from institutional investors in the case of approval of bitcoin-ETF can provoke a sharp price rise. According to the most conservative estimates of experts, if the companies that applied for the funds invest at least 1% of their assets in cryptocurrency ETFs, the price of bitcoin could rise by about $30-40 thousand above the mark before the formation of these funds.
The SEC plans to make a final ruling on this issue in early 2024. It's likely to happen around April or May, almost immediately after bitcoin's halving. Historically, regulators have followed a strategy that reinforces market trends in their decisions. According to analysts at Bloomberg Intelligence, the likelihood of the SEC approving an ETF in early 2024 is estimated to be about 90%.
FOMO
Investors, bloggers, and analysts publish screenshots of their successful trades, showing tens and hundreds of per cent profits. Against the ever-increasing bitcoin rate, many unsophisticated investors have a growing sense of lost profits. This situation supports the current bullish trend.
Balance of supply and demand
Market conditions have also helped. Because bitcoin is forming a "green candle" for the eighth week, many investors are counting on a long-awaited correction, which provokes them to open short positions on the margin market.
The amount of liquidations on major exchanges exceeds $300 million/day.
But the continued growth forces brokers to forcibly close such positions, i.e. buy more bitcoin.
Other
In addition to the reasons mentioned above, market participants also lay in the price and stop the tightening of monetary policy. This is becoming evident in the growth of Western stock markets and bond values.
The expected inflow of liquidity after normalizing the world's economic situation may shake up all open markets, including cryptocurrency.
Other reasons for the growth include the growing hash rate of the network and investors' hopes for the upcoming changes in the regulation of the crypto industry.
Despite severe allegations and billions of dollars in fines, the world's largest crypto exchange Binance, remains afloat and inspires optimism among investors.
Moreover, it is known from open sources that regulators managed to sell the management of the exchange to bring it under serious supervision from the U.S., which may have a positive impact on the market because it removes many risks from the sphere of cryptocurrency assets, which opens up broad growth prospects for it.
What will happen next?
Despite the new rally in the bitcoin market, many experts are still sceptical about the asset. Most analysts believe that market processes and investors' expectations cause the current price increase. That is, bitcoin can just as quickly collapse at the slightest negative signal from U.S. exchange regulators.
One of bitcoin's leading critics, Peter Schiff (president of brokerage firm Euro Pacific Capital Inc.), said that the speculative frenzy around bitcoin-ETFs will soon end, and bitcoin's collapse will be more impressive than its rally of recent months.
In any case, it is worth sticking to conservative strategies during long rallies. It would help if you refrained from buying or doing so in very small quantities.
On the other hand, selling can be encouraged because, by all indications, the market is expecting a correction soon.
According to popular opinion, the best time to buy Bitcoin is when its powerful price decreases by 15-20%.
In addition, it should be noted that the actual inflow of funds into the market has not yet begun. The seeming influx of funds into the industry hasn't really happened yet. The feeling of huge investments arises from the fact that Tether "prints" new stablecoins for many millions of dollars every week — over the last year, since November 2022, the capitalization of USDT has increased by 30% to $88 billion.
But if you check the total balance of the top 3 stablecoins, it turns out to be harmful due to the redistribution of funds. This is due to a severe capital outflow from BUSD and the departure of part of the audience from USDC.
Despite weekly reports of millions of new USDT tokens, this year's total balance of stablecoins not only did not grow but even decreased by rough estimates by $17 billion (i.e., about 13%).
Once all investors' expectations come true and a natural flow of liquidity comes to the market, we should expect a few months of profound growth. Perhaps, even with the establishment of a new price maximum. But not before.