BTC

Explaining Bitcoin's Rally: What Catapulted It Beyond $50,000

It's hard to believe, but after a remarkable surge to start 2024, Bitcoin (CRYPTO: BTC) is within striking distance of a new all-time high. Bitcoin climbed almost 25% in just a few days to reach a 52-week high of nearly $53,000 on Thursday.

While several factors are behind the recent jump, two in particular stand out. Here's why Bitcoin passing the $50,000 mark is just a sign of what's to come.

bitcoin cryptocurrency arrows

Image source: Getty Images.

A pattern of boom and busts

Looking back at Bitcoin's price movements over the years, a clear pattern emerges. After notching new highs, it tumbles into a prolonged and brutal bear market. These cycles seem to happen roughly every four years.

During the previous cycle, Bitcoin hit its all-time high of nearly $69,000 in November 2021. Then, as fast as it rose, Bitcoin slipped into a bear market in 2022. It lost more than 75% of its value and, at one point, fell to just $15,759.

But since the start of 2023, Bitcoin slowly climbed out of what some analysts believe was the longest crypto winter in its 15-year history. When all was said and done, it finished 2023 up more than 150%.

Now, a new year is starting, and Bitcoin is prepping for what looks to be another bull run. Just like what occurred in past cycles, capitulation has run its course, and sentiment is renewing by the day.

A new type of buyer enters the market

Adding to the refreshed sentiment was the Securities and Exchange Commission's approval of new Bitcoin exchange-traded funds (ETFs). Long sought after by the Bitcoin community, Wall Street's acceptance of the original cryptocurrency is viewed by many as an unofficial stamp of legitimacy, signaling that Bitcoin is no longer viewed as just some obscure form of internet money.

While the hype of the ETF approvals undoubtedly fueled Bitcoin's resurgence, their actual impact is only beginning to appear. In a little over a month, data shows that, on average, $125 million has flowed into the ETFs daily. To keep up with demand, the firms backing these ETFs, such as BlackRock, Fidelity, and ARK Invest, embarked on buying sprees of historic proportions.

As of Feb. 15, sponsors of the Bitcoin ETFs have purchased a whopping 251,888 bitcoins. BlackRock's iShares Bitcoin Trust (NASDAQ: IBIT) leads the way with 109,609. Collectively, these ETFs now own roughly 3.4% of Bitcoin's maximum supply of 21 million coins.

What has occurred over the last month is unlike anything before in Bitcoin's history. These ETFs are simply buying Bitcoins faster than they're produced. On average, around 900 are mined and enter the market daily. On Feb. 13, BlackRock alone purchased 10,004 Bitcoin. That's 11 times the rate of Bitcoin's production.

Like any asset for which supply is being outstripped by demand, Bitcoin's price has to rise. While the cyclical nature of Bitcoin's price is likely playing a role in the recent surge, its new home on Wall Street is proving to be much more impactful.

What investors should expect next

As explosive as the last several months have been for Bitcoin, the price surge might continue. In April, it will undergo its fourth halving -- reducing by half the rewards that miners earn for validating transactions on the blockchain. Hardwired into Bitcoin's code and occurring roughly every four years, halvings play a fundamental role in Bitcoin's monetary policy as they reduce the inflation rate of the cryptocurrency.

Historically, in years that a halving has occurred, Bitcoin's price has increased more than 120% as demand competes for a diminished supply of new coins. But this halving could be particularly explosive with ETFs buying at historic rates.

After the halving, the number of Bitcoins entering the market daily will fall to roughly 450. Should ETF operators continue to accumulate tens of thousands of Bitcoins each day, don't be surprised if Bitcoin keeps up its momentum through 2024.

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RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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