Bitcoin is once again in the midst of a perplexing rally, marking a significant resurgence for the world’s largest cryptocurrency. After spending much of the summer stagnating around the $26,000 mark, Bitcoin commenced a notable climb late last week. It surpassed the $30,000 threshold over the weekend, briefly soaring past $35,000 in recent days, reaching its highest level since May 2022. Presently, it hovers around $33,800.
Within the ever-evolving crypto landscape, the reasons behind this sudden surge remain a topic of debate with no clear consensus.
Some crypto enthusiasts point to indicators suggesting that U.S. regulators are on the verge of approving a range of exchange-traded funds (ETFs) specifically designed for holding actual Bitcoin, known as spot Bitcoin ETFs. If approved, these ETFs would enable investors to seamlessly trade Bitcoin through brokerage accounts, much like traditional stock shares.
“There’s a lot of pent-up demand for these products,” noted Matthew Sigel, Head of Digital Assets Research at VanEck, one of the numerous asset managers awaiting approval for their spot Bitcoin ETF applications.
Another theory attributes Bitcoin’s recent rally to Rep. Tom Emmer’s pursuit of becoming House Speaker, as he is a well-known advocate for cryptocurrencies. However, even after his withdrawal from the contest, Bitcoin continued to surge.
A popular narrative centers around Bitcoin’s upcoming “halving,” an adjustment to the blockchain that effectively halves the rewards miners receive for processing transactions and creating new Bitcoin. Proponents argue that this event underscores Bitcoin’s potential as a store of value due to its limited supply.
“People across the spectrum are looking for reasons to believe,” explained Bobby Zagotta, CEO of the crypto exchange Bitstamp USA. “They’re looking for signs of health in this market.”
The one certainty in this scenario is the highly volatile and speculative nature of Bitcoin as an investment, making it susceptible to significant price fluctuations. After a tranquil summer marked by low volatility and trading volumes, the market has now sprung back to life.
Here’s how Bitcoin’s latest surge is impacting the broader crypto industry:
Crypto Stocks:
The Bitcoin rally has lifted the value of crypto-related stocks and other tokens. Coinbase Global’s shares, for instance, witnessed a rally on Monday and Tuesday, even though they later retraced their gains. The stock has doubled in value in 2023 but remains 80% below its 2021 peak. Coinbase is listed as the custodian for several asset managers vying for approval in the spot Bitcoin ETF competition, responsible for safeguarding the Bitcoin and earning fees based on the total value of the funds’ assets.
Despite the stock rally, Coinbase’s future is clouded by legal challenges. The SEC filed a lawsuit against the company in June, alleging that it violated rules requiring registration as an exchange under federal oversight. Coinbase is scheduled to release its third-quarter results soon.
Other stocks that have experienced movement include MicroStrategy, a software intelligence company that holds over 150,000 Bitcoin, with its shares gaining 17% over the past week. Bitcoin mining companies Marathon Digital and Riot Platforms have also seen their stocks rise by 14% and 7.6%, respectively. Additionally, other tokens like Ether, Dogecoin, and Solana have also observed price increases.
The Grayscale Bitcoin Trust:
The world’s largest Bitcoin fund, the $21 billion Grayscale Bitcoin Trust, is seeking approval to convert into a spot Bitcoin fund. Notably, it is currently trading at a 16% discount to the underlying value of the Bitcoin it holds, compared to 42% in mid-June and nearly 50% at the end of the previous year. This narrowing spread is seen by crypto enthusiasts as a positive indicator for its chances of approval after an appeals court ordered the SEC to reassess its application in August.
The fund’s shares have risen by 6% in the past week and have more than tripled in value in 2023.
CME Bitcoin Futures:
Institutional interest in Bitcoin futures has been steadily increasing alongside the recent rally driven primarily by individual investors. The Chicago Mercantile Exchange (CME), a favored platform for large investors, recorded a record number of unsettled and active Bitcoin futures contracts, known as open interest, exceeding 20,000 contracts on Monday. This open interest on CME represents 100,000 Bitcoin with a notional value of $3.4 billion.
Bitcoin Trading Volume:
Spot Bitcoin trading volumes have rebounded after hitting their lowest levels of the year in September. Higher trading volumes typically indicate increased liquidity, facilitating quicker trades at quoted prices. This resurgence has helped Bitcoin regain its dominance in the crypto market, with Bitcoin’s market value currently accounting for over half of the total crypto market, amounting to about $660 billion.
At nearly $34,000, the price of Bitcoin has more than doubled in 2023, yet it remains well below its peak of almost $69,000 in November 2021. This return to May 2022 levels signifies a resurgence in Bitcoin’s value, reminiscent of its trading position just before the significant market events like the $40 billion cryptocurrency loss, the bankruptcies of several crypto lenders, and the collapse of the exchange FTX.