Bitcoin Reaches New All Time High – Here’s What Driving Its Growth

• Blockchain Council
• September 12, 2024

Summary

• Bitcoin experienced significant volatility in early 2024 before gradually increasing in price above $43,000 by mid-January.
• By March 2024, Bitcoin surged past $62,000 and eventually reached a new all-time high of $71,000 on March 11.
• The upcoming Bitcoin halving event on April 19 is anticipated to further reduce the mining reward, potentially increasing demand and price.
• Institutional investors, including hedge funds and companies, have shown increasing interest in Bitcoin, contributing to its market liquidity and stability.
• The approval of Bitcoin Exchange-Traded Funds (ETFs) by the SEC marks a significant milestone, expanding access to cryptocurrencies for traditional investors.
• Bitcoin’s role as a hedge against economic instability has been highlighted amid global inflation concerns and geopolitical tensions.
• Expert predictions suggest Bitcoin’s value could surge beyond $200,000, driven by increasing global liquidity and utility.
• Regulatory and environmental challenges, such as proposed taxes on Bitcoin miners, could influence market sentiment and Bitcoin’s price trajectory.
• The future of Bitcoin remains uncertain, with diverse opinions on its long-term viability as a mainstream form of payment.
• Understanding the factors driving Bitcoin’s growth is essential for making informed investment decisions and navigating its potential risks.

In 2023, Bitcoin showcased a dramatic performance, indicating a strong resurgence and setting the stage for a new all-time high (ATH) in 2024. The journey began with noticeable volatility in early 2024, as Bitcoin’s price fluctuated significantly. In January, prices moved from around $42,000, displaying a mix of minor dips and recoveries, which emphasized the cryptocurrency’s unstable nature during that period. Despite these fluctuations, a gradual increase was observed, with the price stabilizing above $43,000 by mid-January​​.

As March 2024 approached, Bitcoin’s growth accelerated, pushing the boundaries further. In early March, the price surged past $62,000, a significant jump from its February standings. This remarkable increase highlighted the intense buying pressure and positive sentiment among investors. And finally, on March 11 Bitcoin crossed the mark of $71,000 setting a new ATH (all time high). 

Below we discuss the possible reasons that led to the rise of Bitcoin surpassing its previous ATH of $68,000 (Novemeber 2021).

What Is Bitcoin Halving, and Why Does It Matter?

The Bitcoin halving is a significant event in the cryptocurrency world where the reward for mining Bitcoin transactions is cut in half. This happens approximately every four years and is designed to reduce the rate at which new bitcoins are generated by the network. This way it maintains the 21 million cap of Bitcoin.

Historically, Bitcoin halving events have led to price increases. The reasoning is straightforward: with rewards halved, new Bitcoin supply decreases, which can lead to higher demand and, consequently, price increases. Initially, the reward was 50 bitcoins per block; it was then reduced to 25, and later to 12.5. The 2024 halving is expected to lower the mining reward from 6.25 to 3.125 bitcoins per block. This event is particularly noteworthy following a period known as the “crypto winter” in 2022 and an economic downturn in 2023, emphasizing Bitcoin’s deflationary characteristic as a hedge against inflation in traditional currencies. 

Following past halvings in 2012, 2016, and 2020, Bitcoin experienced substantial price rallies. As we approach the 2024 Bitcoin halving event on April 19, the largest crypto reaching its new ATH in March can be directly associated with the anticipation of the upcoming halving event.

The Role of Institutional Investors in Bitcoin’s Growth

In recent years, Bitcoin has seen a substantial increase in interest from institutional investors. This shift is changing the market dynamics of Bitcoin by introducing larger volumes of capital and a different investment perspective compared to retail investors. Institutional investors include hedge funds, endowments, pension funds, and companies adding Bitcoin to their treasury reserves. 

• The introduction of financial products such as Bitcoin ETFs has made it easier for these investors to gain exposure to Bitcoin, further fuelling its adoption and price increases. For instance, the launch of US spot Bitcoin ETFs and the subsequent inflow of capital into these products have had a significant impact on the market, absorbing sell pressure and potentially leading to price increases​​.
• This institutional interest not only contributes to the market’s liquidity but also plays a pivotal role in reducing volatility, a common criticism of Bitcoin in its earlier days. As more institutional investors enter the market, their long-term investment horizons and large-scale buy-ins could mitigate sharp price swings, providing a more stable growth trajectory for Bitcoin​​.
• Moreover, institutional adoption signals to retail investors and the broader public that Bitcoin is a viable and legitimate asset, encouraging further participation in the market. 

A detailed report by Cointelegraph Research, in collaboration with the Crypto Research Report highlights that between 2014 and 2023, a traditional 60/40 asset allocation portfolio would have yielded a 71% cumulative return without Bitcoin. By merely adding a 5% allocation of Bitcoin to this mix, the return would have soared to 157%. This dramatic enhancement of portfolio performance underpins the strategic imperative for institutions to navigate the Bitcoin landscape thoughtfully. 

The Impact of Regulatory Changes on Bitcoin

The landscape of Bitcoin and other cryptocurrencies has been significantly shaped by regulatory developments in 2024, particularly with the U.S. Securities and Exchange Commission’s (SEC) historic approval of Bitcoin Exchange-Traded Funds (ETFs). After years of rejections and deliberations, the SEC’s decision on January 10, 2024, to greenlight several Bitcoin ETFs marks a pivotal shift. This approval allows for Bitcoin to be traded on SEC-regulated exchanges through trusts, expanding access to a broader investor base, including those interested in incorporating cryptocurrencies into retirement accounts and traditional brokerage accounts​​​​.

This move by the SEC is seen as a strong indication of the agency’s compliance with the rule of law, suggesting a merit-neutral stance towards financial innovations. Despite Chair Gensler’s reiteration that the approval doesn’t change the Commission’s views on other crypto assets or their compliance requirements, this development is viewed as a significant step forward for the cryptocurrency market. It opens up possibilities for future approval of ETFs for other cryptocurrencies, providing a framework for legal and regulated exposure to these assets​​.

Moreover, the SEC’s action is expected to foster a competitive landscape where sponsors and banks vie to offer superior Bitcoin ETF products to the retail market. This could enhance market acceptance and potentially lead to a wider adoption of Bitcoin and other cryptocurrencies. The necessity for good governance and expert legal advice in navigating the complex landscape of ETFs and crypto assets is emphasized, highlighting the importance of experience in both traditional finance (TradFi) and decentralized finance (DeFi)​​​​.

Bitcoin and the Broader Economic Landscape

Recent global economic factors have also played a crucial role in increasing Bitcoin’s price, especially as a hedge against economic instability. In the broader economic landscape, cryptocurrencies, particularly Bitcoin, have been increasingly considered by investors seeking alternatives to traditional assets amid inflation concerns and geopolitical tensions.

• The approval of Bitcoin ETFs is likely to further cement Bitcoin’s role as an alternative investment option. By providing a regulated and accessible means for investment, Bitcoin ETFs could attract a larger segment of investors looking for ways to diversify their portfolios against economic uncertainties. The ETFs’ introduction into the market comes at a time when the global economy faces various challenges, including fluctuating currency values, supply chain disruptions, and changing monetary policies across different countries.
• Moreover, the global economic landscape, characterized by its search for stability and reliable investment avenues, has been conducive to the growth of Bitcoin as a speculative asset that offers potential high returns. The digital currency’s inherent properties, such as its limited supply and its decentralized nature, have appealed to those looking for assets that can perform well in times of inflation or when traditional financial systems are under strain.

Future of Bitcoin – Expert Predictions

Experts like Dan Tapiero and Raoul Pal suggest that Bitcoin’s value could surge beyond $200,000, driven by increasing global liquidity and the transformative shift it represents in global finance. 

Venture capitalist Tim Draper predicts Bitcoin could reach as high as $250,000 in 2024, buoyed by the bullish trends on digital assets and the utility of stablecoins as a bridge to Bitcoin. Draper’s anticipation of a new economic model leveraging smart contracts could streamline financial transactions, reducing friction significantly​​.

Experts also consider the broader implications of regulatory and environmental challenges. Actions by the US Commodity Futures Trading Commission against cryptocurrency exchanges and the proposed tax on Bitcoin miners by the White House for environmental concerns highlight potential headwinds that could influence market sentiment and Bitcoin’s price trajectory​​. 

It’s important to remember that while the current trend is bullish, the future of Bitcoin remains uncertain.  Experts hold diverse opinions on its long-term viability. Some believe it has the potential to become a mainstream form of payment, while others express concerns about its  volatility and environmental impact.

Conclusion

As we’ve explored the impressive journey of Bitcoin to its new all-time high in 2024, it’s clear that a confluence of factors has contributed to its spectacular growth. Bitcoin’s potential rewards are undeniable, but so are the risks. Bitcoin’s journey is far from over. Its success, or failure, could have a profound impact on the future of finance. By understanding the forces driving its growth, you can make informed decisions about your own financial future. Conduct your own research, understand your risk tolerance, and consult a financial advisor before making any investment decisions.

Frequently Asked Questions

What caused Bitcoin to reach a new all-time high in 2024?

Bitcoin’s price surged due to a combination of factors, including:

• Anticipation of the upcoming Bitcoin halving event, which reduces the rate at which new bitcoins are generated.
• Increased interest from institutional investors, such as hedge funds and companies, contributing to higher demand and liquidity.
• Regulatory developments, such as the SEC’s approval of Bitcoin Exchange-Traded Funds (ETFs), making it easier for traditional investors to access cryptocurrencies.

How does the Bitcoin halving event affect its price?

• The Bitcoin halving event, occurring approximately every four years, reduces the reward for mining new bitcoins by half.
• This reduction in supply, coupled with sustained or increased demand, typically leads to price increases.
• Historical data from previous halving events in 2012, 2016, and 2020 suggests that Bitcoin experiences substantial price rallies following halving events.

What role do institutional investors play in Bitcoin’s growth?

• Institutional investors, including hedge funds and pension funds, have increasingly shown interest in Bitcoin as an alternative investment asset.
• Their entry into the market has brought larger volumes of capital, contributing to increased liquidity and stability.
• The introduction of financial products like Bitcoin ETFs has made it easier for institutional investors to invest in Bitcoin, further fueling its adoption and price increases.

What are some potential challenges facing Bitcoin’s future growth?

• Regulatory uncertainty: Changes in regulations, such as taxes on Bitcoin miners or restrictions on trading, could impact market sentiment and price.
• Environmental concerns: Bitcoin mining consumes significant energy, leading to criticism regarding its environmental impact.
• Volatility: Bitcoin’s price is notoriously volatile, which may deter some investors from adopting it as a mainstream form of payment.
• Competition: Other cryptocurrencies and digital assets pose competition to Bitcoin, potentially affecting its market share and growth trajectory.