Wind of euphoria on bitcoin

(London) Forgotten the recent scandals or a new era thanks to new investment products authorized in the United States? Bitcoin, at its highest level in two years, rose above $50,000 this week and seems set to continue its rise.

During the night from Wednesday to Thursday, the largest cryptoasset reached $52,524, a new high since December 2021. On Wednesday, it had exceeded the milestone of $1,000 billion in capitalization, according to the Coingecko platform.

Its price has soared by more than 20% since the beginning of February and has more than tripled since January 2023.

If the price of bitcoin has not returned to its historic level of November 2021, at nearly $69,000, it has largely recovered since the collapse of its prices at the end of 2022, in the wake of the sinking of several giants in the sector.

Analysts put forward two main factors to explain the new surge in prices.

First, the effects of a new investment product, a bitcoin index fund (ETF), which offers investors the possibility of placing their money in these funds depending on the performance of this digital asset, without having to directly hold of bitcoins.

Once the green light was given by the policeman of the American markets, the SEC, the launch of this new type of investment propelled bitcoin beyond $49,000 on January 11, before prices fell back a little. .

Anxious to recover their stake, some investors had in fact made massive withdrawals from the GBTC fund (Grayscale Bitcoin Trust), which already existed before being converted into an ETF and accumulated more than $28 billion in assets.

In order to compensate for redemption requests, Grayscale had to sell part of its bitcoin holdings, which had cooled investors.

But “this initial wave of exits” has now “dried up”, and optimism has returned to the bitcoin market, which has returned to the peaks, notes James Harte, analyst at Tickmill.

“Simultaneously, inflows to other ETFs tracking bitcoin have increased significantly,” and experienced net inflows over the past two weeks, explains Simon Peters, an analyst at eToro, interviewed by AFP, which has pushed the bitcoin price on the rise.

Fear of missed opportunity

Charles Morris, from ByteTree, interviewed by AFP, also notes “the anticipation of “halving”” (or “halving” in English), a technical phenomenon which consists of the division by two of the reward of “miners » of bitcoins — those which contribute to the creation of blockchains by validating transactions.

This event occurs approximately every four years and the next one is scheduled for April.

It is expected to slow the speed at which new bitcoins enter the market, reducing the cryptocurrency’s potential availability for purchase and boosting its value.

Especially since the crypto-asset already has a finite number of units: its creator Satoshi Nakamoto has limited the maximum number of bitcoins in the world to 21 million.

Accentuating these fundamental factors, the fear of missing out on potential gains also seems to play a role, adds Walid Koudmani, of XTB, questioned by AFP.

This feeling of missing the boat had already pushed individual and institutional investors to enter the cryptocurrency market during previous periods of significant price appreciation, according to Mr. Koudmani.

This attraction is reinforced by the prospects of imminent rate cuts from major central banks, which increase the appetite for risk in the markets.

But the analyst urges caution, because although market sentiment remains extremely positive, he recognizes the “volatility and uncertainties” of a sector where investors’ assessments can change quickly depending on market performance or evolution of regulations.

The bankruptcies of several giants of the sector including the cryptocurrency exchange platform FTX had undermined investor confidence and led to a collapse in prices at the end of 2022.

In 2017, a previous cycle of exuberant enthusiasm had already been followed by a collapse in the price.

Central banks and regulatory authorities continue to call for caution in the face of this highly speculative market.


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