Bitcoin surges to $50,000 for the first time since 2021 on ETF demand

By Elijah Nicholson-Messmer and David Pan

Bitcoin hovered around $50,000 after briefly scaling the closely watched level for the first time in over two years, a remarkable comeback from the crypto scandals and wipeouts that cast doubt on the industry’s viability.
 

The largest digital asset rose as high as $50,328 on Monday in the US and was trading at $49,980 as of 7:40 a.m. Tuesday in Singapore. It has tripled in value since the start of last year after a 64 per cent plunge in 2022. Bitcoin remains below the all-time high of almost $69,000 achieved in November 2021.  

The wild price fluctuations seen since the introduction of Bitcoin more than a decade ago have long been one of the main attractions to speculators. While originally promoted as an alternative to the traditional financial system, the latest rally has been driven by optimism that last month’s US approval of spot Bitcoin exchange-traded funds is leading to greater mainstream acceptance. 

“There is a lot of talk about inflow of money into this asset,” said Matt Maley, chief market strategist at Miller Tabak & Co. “I’d also note that the momentum players are getting excited as well.”

Risk Appetite
 

The resurgence in crypto prices comes as expectations of looser monetary policy burnish the allure of riskier assets. “The appetite for risk has trickled over into digital assets as well,” said Chris Newhouse, a DeFi analyst at Cumberland Labs.

Shares of crypto-related companies also gained Monday with Bitcoin proxy MicroStrategy Inc. rising 11 per cent, trading platform Coinbase Global Inc. increasing 3.8 per cent and miner Marathon Digital Holdings Inc. jumping 14.2 per cent. The positive sentiment could spread to Asian stocks related to digital assets.

Bitcoin has recovered all its losses since the May 2022 implosion of stablecoin TerraUSD, which set in motion a wave of failures that ultimately helped bring down Sam Bankman-Fried’s FTX exchange in November 2022. 

By the time FTX went down, the crypto market was already months into a rout that also claimed hedge fund Three Arrows Capital and lender Celsius Network. But the fall of FTX, once one of the top crypto exchanges by trading volume, was even more damaging, with token prices stagnating as liquidity dried up. 

Chart

Now with Bankman-Fried convicted of fraud, and the Binance exchange’s co-founder Changpeng Zhao awaiting sentencing for US sanctions violations and failing to implement anti-money laundering policies, crypto prices have moved higher as analysts see fewer looming risks to the industry. 

ETF Inflows
 

Nine US spot Bitcoin exchange-traded funds debuted on Jan. 11, while the more than decade-old Grayscale Bitcoin Trust converted into an ETF the same day. The accessibility of ETFs promises to widen the investor base for the token. The new funds have attracted about $9 billion so far, while a more than $6 billion outflow from the Grayscale fund since its conversion seems to be losing steam.

“Enthusiast buyers bring in more enthusiast buyers pushing prices further up,” said Fadi Aboualfa, head of research at crypto-custodian Copper Technologies Ltd. “The cryptocurrency has momentum on the back of several green weeks and has a large chance of going up further when markets see weekly movements upwards of 10 per cent (as we saw last week).” 

Optimism about the quadrennial Bitcoin halving due in April is also filtering across crypto. Halving cuts the quantity of Bitcoin that miners receive for operating the powerful computers that verify transactions on the blockchain. The event is often viewed a support for prices based on historical precedent.   

Aside from ETF inflows, sentiment toward Bitcoin is “typically positive” during the Lunar New Year holidays that are currently underway in Asia, Fundstrat Global Advisors wrote in a note.