Bitcoin breaks $50,000 for the 1st time in over 2 years due to ETFs, Fed cuts, and the upcoming halving

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Bit­coin topped $50,000 on Mon­day for the first time since Decem­ber 2021, accord­ing to CoinGecko data, sug­gest­ing con­fi­dence in the dig­i­tal cur­ren­cy is grow­ing after a tur­bu­lent two years of scan­dals and bank­rupt­cies.

Thanks to inflows into exchange-trad­ed funds, spec­u­la­tion of future mon­e­tary eas­ing, and the upcom­ing halv­ing, “tail­winds for dig­i­tal assets are the strongest they’ve been in quite some time,” Christo­pher New­house, a DeFi ana­lyst at Cum­ber­land Labs, told For­tune

BTC plunged 64% in 2022, reach­ing lows of $16,000, owing in part to the implo­sion of FTX. But over the past 12 months, it has increased approx­i­mate­ly 129%—although the price remains below the all-time high of almost $69,000 reached in Novem­ber 2021.

When the Secu­ri­ties and Exchange Com­mis­sion approved 10 spot Bit­coin ETFs on Jan. 11, retail and insti­tu­tion­al investors gained expo­sure to BTC with­out the need to hold the under­ly­ing asset. The merg­ing of tra­di­tion­al finance with dig­i­tal assets, with firms like Black­Rock and Fideli­ty launch­ing funds, has been hailed as water­shed moment for crypto.

But despite antic­i­pa­tion that new retail and insti­tu­tion­al investors would tur­bocharge a bull mar­ket, BTC ini­tial­ly looked volatile.

The under­whelm­ing impact of the SEC’s approval on BTC prices was large­ly caused by out­flows of over $6 bil­lion from the decade-old Grayscale Bit­coin Trust, which had oper­at­ed as a closed-end trust, pre­vi­ous­ly lock­ing in investors who are now free to liq­ui­date, accord­ing to Bloomberg. The GBTC exo­dus helped push prices down to $39,505, with BTC falling approx­i­mate­ly 15% from the approval date.

But it’s now clear that out­flows are slow­ing, and the price is catch­ing back up. In the first few weeks of trad­ing, dai­ly out­flows aver­aged $500 mil­lion, but they’ve been steadi­ly declin­ing since Jan. 26. On Fri­day, out­flows totaled just $51.8 mil­lion, accord­ing to Bloomberg data, the low­est since the approvals.

Mean­while, inflows into the oth­er nine ETFs have been accel­er­at­ing: Last week, the cumu­la­tive net inflow was approx­i­mate­ly $1.2 billion—almost half of the total so far.

“This strong buy­ing-spot pres­sure is dri­ving the price up, and that’s the main dri­ver of the recent growth,” Mat­teo Gre­co, a research ana­lyst at invest­ment firm Fineqia Inter­na­tion­al, told For­tune.

If the ETF inflows con­tin­ue at this pace, gain­ing rough­ly $1 bil­lion per week, “Bit­coin will go up every day,” said Geoff Kendrick, Stan­dard Chartered’s head of dig­i­tal assets research.

On top of this, the Fed­er­al Reserve has indi­cat­ed that inter­est rates will be cut in the spring, which “pro­vides anoth­er tail­wind for Bit­coin prices,” Markus Thie­len of 10x Research told For­tune. Dur­ing peri­ods of high inter­est rates, riski­er assets like Bit­coin, which are high­ly liq­uid and more volatile, tend to be less attractive.

Mean­while, Dave Nadig, recent­ly VettaFi’s finan­cial futur­ist, attrib­ut­es growth to baked-in opti­mism ahead of April’s halv­ing, where the finan­cial reward min­ers receive halves, there­by cut­ting sup­ply, as small­er min­ers are forced out of the market. 

“The halv­ing gives a rea­son for every­body to be pay­ing atten­tion to Bit­coin,” he told For­tune. “There is a mechan­i­cal rea­son that we should expect the num­ber to go up, which is that the sup­ply is going offline.”

Indeed, a bull mar­ket has fol­lowed each of the pre­vi­ous four halv­ing events. When the first took place in Novem­ber 2012, the price of BTC was around $12. One year lat­er, it had risen to over $1,000. BTC was at $8,755 at the time of the most recent halv­ing in May 2020 before its mad rush toward $69,000 the fol­low­ing year.

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