On Monday, the stock market experienced a challenging day following weeks of robust performance, echoing a similar trend in the bond market. Gold, after reaching a new record above $2,100 per ounce, reversed its course. However, in the digital assets sector, Bitcoin demonstrated resilience, maintaining its strength after a weekend surge that propelled the pioneer cryptocurrency above $42,000 for the first time in 19 months. The cryptocurrency market, characterized by fervent speculation, has witnessed an extraordinary rally of over 150% this year.
While conventional market traders reassess their approach to potential Federal Reserve interest-rate cuts in the coming year, Bitcoin remains steadfast. Bitcoin-specific factors, notably the anticipation of the US Securities and Exchange Commission’s approval of exchange-traded funds directly tied to the cryptocurrency, have enabled Bitcoin to break free from a three-week trading range.
According to Yiannis Giokas, a senior director with Moody’s Analytics, the primary driving force behind Bitcoin’s surge is the increasing number of applications for spot Bitcoin ETFs, expected to receive SEC approval. Major asset managers are gearing up to acquire the underlying asset, intensifying the competition to launch these financial instruments.
On Monday, Bitcoin saw a surge of up to 6.1%, reaching $42,144, and by 4 p.m. in New York, it was trading at $41,803. These levels were last seen in April 2022, before the collapse of the TerraUSD stablecoin triggered a $2 trillion downturn in digital assets. Bitcoin is on track for its most significant annual gain since 2020.
Other cryptocurrencies, including Ether and Dogecoin, also experienced upward momentum. Bitcoin Cash rose by 9%, and the top 100 crypto coins’ gauge increased by over 4%. In the US, companies linked to cryptocurrencies, such as Coinbase Global Inc., Marathon Digital Holdings Inc., and MicroStrategy Inc., outperformed the overall stock market.
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The crypto industry is eagerly awaiting the SEC’s decision on applications from firms like BlackRock Inc. to launch the first US spot Bitcoin ETFs. Bloomberg Intelligence predicts that a batch of these products will receive approval by January.
Despite facing regulatory challenges, such as the crackdown on FTX’s Sam Bankman-Fried and penalties for Binance and its founder Changpeng Zhao, Bitcoin’s revival from the 2022 crypto crash signals resilience. Optimists view regulatory actions and the potential for ETFs as indicators of a maturing crypto industry and the prospect of a broader investor base.
However, potential risks linger, including shifts in interest-rate expectations and unforeseen hurdles for ETF approvals. Some technical indicators suggest Bitcoin’s rally may be stretched, with the weekly relative-strength index closing above 75 for the past two weeks, signaling potential “overbought” conditions.
Notwithstanding these concerns, Bitcoin’s performance in 2023 has outpaced global stocks and gold. The derivatives market also reflects heightened interest, with record open interest levels at the CME Group for Bitcoin futures and the Deribit platform for options on the leading cryptocurrency.
An optimistic factor influencing sentiment is the upcoming Bitcoin halving in the next year, which will halve the rewards for Bitcoin miners. This quadrennial event, part of the process to cap Bitcoin’s supply at 21 million tokens, historically precedes record highs for the cryptocurrency.
In the view of Cici Lu McCalman, founder of blockchain adviser Venn Link Partners, factors like the upcoming halving and the outlook for US monetary policy could propel Bitcoin toward $50,000 before any major correction. Despite this positive trajectory, Bitcoin and the broader crypto market remain below the all-time highs achieved during the pandemic-era crypto bull run, with the largest token reaching almost $69,000 in November 2021.
