Bitcoin Surges to 18-Month Highs: What Is Going On?

Bitcoin (BTC) is once again in the spotlight in financial markets as it’s approaching a high of $35,000. This marks the highest price for the world's leading cryptocurrency in more than 1.5 years. The crypto has also had an impressive 13% growth in just the last week, the top result among all major cryptocurrencies. In this article, we are looking at the key reasons for Bitcoin’s latest surge.

What is behind this surge?

Bitcoin, similar to any other crypto asset, is known for having periods of barely explainable growth and decline. However, the current uptrend has three clear fundamental reasons that underpin the surge:

1. Anticipation of Bitcoin Spot ETF Approvals

One of the primary drivers behind the surge is the widespread expectation within the investment fund industry of the approval of Bitcoin spot ETFs. Several major players in the investment world, including BlackRock, Fidelity, and Grayscale, have submitted applications for Bitcoin spot ETFs. The market eagerly awaits the verdict from the Securities and Exchange Commission (SEC).

While the SEC has chosen to drag out the decision-making process, it is widely believed that the approval of these ETFs is highly likely. The regulator has few substantive reasons to reject the applications. The SEC could have provided some of the approvals this month but continues to play the “let’s talk about it later” game. However, by early 2024, the SEC is legally obliged to provide a definitive answer to the funds seeking the approvals. Many observers believe that the SEC is unlikely to come up with any half-justifiable reason to roundly reject all the Bitcoin spot ETFs.

The expectation of Bitcoin ETF approvals is a critical factor in driving the cryptocurrency's price. These ETFs will open the doors for a broader range of investors who previously hesitated to buy Bitcoin due to concerns about regulation and investor protection. By offering Bitcoin in a regulated environment of the stock market, the ETFs are likely to attract a significant influx of capital.

2. Upcoming Bitcoin Halving

Another key factor contributing to Bitcoin's surge is the anticipated halving of Bitcoin mining rewards, scheduled for April 2024. Bitcoin “miners”, who validate transactions on the network and secure the blockchain, are rewarded with newly created BTC coins. However, the protocol governing Bitcoin is designed to reduce these rewards over time, effectively halving them at 4-year regular intervals.

The reduction in mining rewards leads to a certain decline in the coin's circulating supply, thereby creating scarcity and leading to increased value. Traditionally, the mining reward halving events were preceded by more active hoarding of BTC, sending the price upwards. We are likely witnessing the beginning of this phenomenon in the expectation of the April halving.

3. Lackluster Performance of the US Stock Market

The third factor driving Bitcoin's remarkable ascent is the underwhelming performance of traditional stock markets, specifically the US market. Since late July, the S&P 500 has experienced a 10% decline, and the overall downward trend for the key stock market index persists. As investors grapple with uncertainty and seek alternative assets to secure their returns, assets like Bitcoin attract more interest.

While Bitcoin is still regarded as a highly volatile asset by many conservative investors, it's difficult to ignore the numbers. Over the last three months, as the stock market has retreated by 10%, Bitcoin has surged by an impressive 23%. Thus, Bitcoin is emerging as an option for those looking to diversify their portfolios and protect their investments from the stock market slump.

The anticipation of Bitcoin spot ETF approvals, the forthcoming halving of mining rewards, and the unimpressive performance of the stock market have converged to create a perfect storm for Bitcoin. It’s likely that the crypto will keep benefiting from these developments not only in the short term but over the course of at least half a year or more. The halving event is a near certainty, and ETF approvals are highly likely based on the assessment of the industry pundits. The only factor that might turn against Bitcoin is a revival of the stock market’s fortunes. Even if the stock market manages a turnaround, the other two factors will keep propping up the price of the world’s leading crypto asset.