Investor focus is increasingly shifting in a drastic way toward cryptocurrencies once again. Yes, there’s the AI narrative that’s driving tech stocks higher, with many megacaps leading the way. But Bitcoin‘s (BTC 6.76%) impressive surge toward new all-time highs is continuing in full force Monday. As of 12:15 p.m. ET, the token had surged by 5.8% over the prior 24 hours to $66,500. This puts Bitcoin within 5% of the all-time high it set during the previous crypto rally in 2021.
There are a number of factors to point to for this rise, both macroeconomic and Bitcoin-specific. Let’s assess what’s responsible for this rally, and whether we’re on the precipice of a new all-time high, or if some further consolidation is more likely.
Capital flows remain the story investors are focused on
Most of the discourse around Bitcoin’s recent move seems to be centered on capital inflows into spot Bitcoin ETFs. That narrative is certainly important to understand, and there’s certainly plenty to think about when it comes to the sheer amount of capital vying to buy Bitcoin on the open market.
The Securities and Exchange Commission (SEC) approved these ETFs roughly two months ago, and since then, the iShares Bitcoin Trust (IBIT 7.39%) has seen more than $7 billion in capital flow into its fund, and two other Bitcoin ETFs have crossed the $1 billion assets under management threshold. In a world of supply and demand, this is inherently bullish for Bitcoin. Its capped supply and soon-to-be-halved mining rewards mean that this capital is chasing a limited pool of digital tokens. With roughly $500 million in investor inflows into Bitcoin daily, prices will have to rise in the absence of profit-taking selling pressure.
That brings me to my second point. The upcoming Bitcoin halving is due in April. This will effectively cut Bitcoin mining production in half, limiting the number of newly minted tokens becoming available on the market. So, at the same time that demand is surging for Bitcoin, the amount of new supply will become tighter, providing a perfect recipe for price appreciation in the near term.
New all-time highs in sight for Bitcoin
Of course, the key question many investors have right now is whether investors who bought near the bear market bottom over the past couple of years (when it was possible to buy Bitcoin below $20,000 per token) will be looking to take profits. Capital inflows are great, but there will undoubtedly be plenty of selling pressure as we near its all-time high.
If daily capital flows into Bitcoin ETFs continue at their recent pace, it’s likely we’ll see new all-time highs hit in short order. Bitcoin is a commodity, an asset, and a trading vehicle all bundled into one. With so much speculative interest in the crypto sector right now (and most of the attention being paid to the most valuable crypto in this space), leveraged bets to the upside continue to pick up. This increased leverage could be enough to keep this rally going, even in the absence of other key catalysts.
Of course, the macro picture could also improve for risk assets, as the market expects central banks to start cutting interest rates in the coming months. Any sort of move from the Federal Reserve to lower interest rates could further energize this rally, and while the market appears to be anticipating these catalysts and factoring them into valuations across the board ahead of their arrival, it’s unclear whether we’ve reached the peak of this mountain of bullish sentiment quite yet.
Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
