Bitcoin Nears Record High Amid Surging Demand for Spot Bitcoin ETFs

Bitcoin Nears Record High Amid Surging Demand for Spot Bitcoin ETFs

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Bitcoin is on a remarkable ascent, edging closer to surpassing its all-time high amidst a rapid resurgence. The digital currency soared by 8% on Monday, reaching $67,310, just a stone’s throw away from its previous peak of around $69,000 in November 2021.

What’s driving this impressive rally? According to experts in the cryptocurrency realm, the surge can be partly attributed to the escalating demand for spot bitcoin exchange-traded funds (ETFs). These ETFs, offering investors a less risky avenue to explore crypto investments, have witnessed a significant influx of capital this year.

“Investors are recognizing bitcoin’s potential as an uncorrelated asset, making it highly appealing for diversifying portfolios,” remarked Joel Kruger, a market strategist at digital currencies exchange LMAX Group, to CBS MoneyWatch.

Spot bitcoin ETFs provide investors with direct exposure to bitcoin without requiring them to hold the digital currency physically. Unlike traditional bitcoin ETFs, where bitcoin futures contracts are the underlying asset, spot bitcoin ETFs hold actual bitcoins. 

Each spot bitcoin ETF is overseen by a management firm that issues shares based on its own bitcoin holdings acquired from other holders or authorized cryptocurrency exchanges. These shares are subsequently listed on conventional stock exchanges.

The U.S. Securities and Exchange Commission (SEC) approved the sale of spot bitcoin ETFs in January. Since then, investors have poured approximately $7.35 billion into the 11 available funds, as reported by Bloomberg on Monday. Major institutional investors such as BlackRock and Fidelity Investments now offer spot bitcoin ETFs.

Bitcoin’s recent price surge commenced months earlier in 2023, reaching a 19-month high of about $41,000 in December. Analysts at the time attributed this surge to several factors, including anticipation of the SEC’s approval of spot ETFs, speculation regarding Federal Reserve rate cuts, and anticipation of the halving event, which reduces the reward for mining bitcoin by half.

Despite the ongoing surge, it’s important to note that bitcoin remains highly volatile, cautioned Laila Maidan, an investing correspondent at Insider, in December. “It doesn’t mean the crypto is going to skyrocket and stay high,” she stated. “It’s still volatile, and there are many individuals who will continue to trade it.”

Nevertheless, bitcoin’s resurgence relieves crypto investors, many of whom experienced significant losses in 2022 following the collapse of FTX and other crypto exchanges. As the world’s largest cryptocurrency, both in terms of trading volume and mining activity, bitcoin often serves as a barometer of the overall health of the crypto industry.