Understanding the market | Who is driving the "craze" of Bitcoin?

Source: Beijing Business Daily

In just one week, breaking three records and ranking as the world's eighth largest asset by market value, the value of Bitcoin is increasingly being recognized along with this wave of growth. According to analysts, the price of Bitcoin may experience significant volatility in the short term. Understanding Bitcoin's position in digital assets and the deep logic of the relationship between digital assets and the digital economy is of great significance for investment decisions and market analysis.

Massive Institutional Funds Pouring In

Over the past month, Bitcoin has seen a wave of upward trends, setting historical highs multiple times. Looking back, Bitcoin hit a record of $68,999.99 per coin in November 2021. Since February 28th, within just half a month, Bitcoin has successively broken through the $60,000 and $67,000 marks, and on the evening of March 5th, it surpassed $69,000, setting a new all-time high. On the evening of March 8th, Bitcoin broke through $70,000 during trading.

With three record-breaking instances in a week, what factors are driving the "craze" of Bitcoin? The market generally believes that the "halving" is a key factor driving the rise in Bitcoin prices.

"Halving" refers to the halving of rewards obtained after producing new blocks, occurring approximately every four years, which reduces the supply of Bitcoin. The new round of "halving" is expected to take place in April, with block rewards decreasing from 6.25 BTC to 3.125 BTC on April 23, 2024.

Another key factor is the issuance of Bitcoin ETFs. On January 11, 2024, the U.S. Securities and Exchange Commission officially approved the listing of Bitcoin ETFs for trading, with a trading volume of $4.6 billion on the first day. This approval has led to a surge in cryptocurrency trading prices, including Bitcoin.

"The approval of the Bitcoin spot ETF by the U.S. SEC is undoubtedly a major milestone. It opens the door to digital assets for investors in the traditional financial system, bringing in huge capital inflows and boosting market confidence," said Yu Jianing, Co-Chair of the Blockchain Special Committee of the China Communications Industry Association and Honorary Chairman of the Hong Kong Blockchain Association, to Beijing Business Daily.

Data from BitMEX Research shows that as of March 8th, BlackRock's iShares Bitcoin ETF holds 197,943 Bitcoins, worth over $13.5 billion. Yu Jianing pointed out that institutional investors typically adopt long-term investment strategies, reducing market volatility and increasing market stability. The increasing institutional demand also indicates that more professional investors are recognizing the value of Bitcoin in asset allocation, especially in the current economic environment where investors seek assets to hedge against inflation and currency depreciation risks.

Currently, a steady stream of funds is flowing into Bitcoin spot ETFs issued by heavyweight investment firms such as BlackRock and Fidelity Investments. Overall, in less than two months, nearly $8 billion in net inflows and the Bitcoin "halving" have ignited bullish sentiment in the market.

Yu Jianing also pointed out that Bitcoin bull markets often enter a stronger upward phase after breaking historical highs. For example, in the previous bull market, after surpassing the 2017 high of $19,891, Bitcoin indeed saw greater upward potential, eventually reaching a peak of $69,000.

The trend reflects a key feature of Bitcoin price dynamics: once it breaks through important psychological and technical resistance levels, market sentiment tends to turn extremely optimistic, triggering a new buying frenzy. Market participants tend to increase their positions after Bitcoin breaks through key resistance levels, expecting new all-time highs. This expectation is further amplified as new market participants join in, unwilling to miss out on the uptrend, thus driving up the price.

Rethinking Digital Assets

It is worth noting that on March 11th, the market value of Bitcoin had risen to $1.398 trillion, surpassing the $1.379 trillion market value of silver, ranking as the eighth largest asset globally. In addition, Ethereum also broke through the $4,000 mark for the first time since December 2021, with a year-to-date increase of over 70%.

This news further fuels market acceptance and optimism towards cryptocurrencies. "Bitcoin's rise to the position of the eighth largest asset globally signifies its maturity in the investment and value storage field," said Yu Jianing.

This achievement reflects the market's enhanced confidence in Bitcoin and its technology, marking the transition of the digital asset field from the early speculative stage to stable development, attracting widespread attention from investors and institutions. As an important asset class, Bitcoin's rise forces the financial industry and investors to reevaluate its role in the modern economy and financial system, prompting a rethink of traditional financial assets.

As Nathan McCauley, CEO and Co-founder of digital asset bank Anchorage Digital, stated, "Bitcoin's all-time high marks a turning point for cryptocurrencies. Traditional institutions who once 'stood by' are now fully engaged as a major driving force in this bull market."

With Bitcoin's soaring momentum showing no signs of slowing down, more "good news" is on the way. The London Stock Exchange announced on March 11th that it will start accepting applications for the admission of Bitcoin and Ethereum ETNs in the second quarter of 2024, with the exact date to be announced "at the appropriate time."

With multiple signals, does Bitcoin still have further upside potential? What lies ahead? Yu Jianing points out that digital assets led by Bitcoin can be considered as a "future asset," whose value can effectively transcend economic cycles.

Digital assets can be seen as a mirror of digital economic development, just as the stock market reflects the relationship with the real economy, the revaluation of digital asset values reflects the development and prosperity of the digital economy. However, as a highly volatile asset, the price of Bitcoin may experience significant fluctuations in the short term, largely depending on factors such as market sentiment, macroeconomic environment, and regulatory policies.

Yu Jianing also reminds that the price fluctuations of Bitcoin are part of its inherent nature, and any investment decision should be based on thorough market research and individual risk tolerance. Understanding the position of Bitcoin in digital assets, as well as the deep logic of the relationship between digital assets and the digital economy, is of significant importance for investment decisions and market analysis.