The bitcoin bounce: what does the new record high mean next?

Bitcoin is back. A new record high this week capped a year of remarkable price gains for the cryptocurrency, which has tripled in value over the last 12 months.

For many market watchers, the new all-time high of $69,000 came as no surprise, though the speed at which it rose caught out even the most bullish analysts.

Less than 18 months ago, bitcoin was languishing below $16,000. Prices plummeted by more than 70 per cent during a crash that saw cryptocurrency exchanges collapse and multibillion-dollar crypto projects fail.

So how did bitcoin get back here so quickly? And will this time be any different? Crypto experts point to two primary reasons for the record-breaking run: the first involves an increase in demand, while the second is a decrease in supply. Basic economic theory dictates that one of these alone will see prices rise. Combined, they have led to “moon” predictions.

The new demand comes in the form of institutional investors, after a landmark decision by the Securities and Exchange Commission (SEC) in January to approve the first wave of spot exchange-traded funds (ETFs) for bitcoin.

This not only brought billions of dollars of inflows to bitcoin but also added protections and much-needed regulation for the industry, further boosting confidence in the cryptocurrency. Speculation surrounding the spot ETF approvals helped push bitcoin from below $20,000 to above $40,000 in 2023, before the long-awaited announcement prompted the second leg of the rally.

The restricted supply is yet to take place, though it’s scheduled to occur at some point in April. Hard coded into bitcoin’s underlying network is an event known as the “halving”. Taking place roughly every four years, the halving sees the rewards for mining bitcoin slashed in half.

This means that the amount of new bitcoin entering the market will drop from 6.25 BTC to 3.125 BTC per 10-minute block. Some analysts have pinned bitcoin’s historical price cycles to this quadrennial event, with price peaks previously occurring in 2013, 2017 and 2021 following bitcoin’s 2009 inception.

The ETFs, combined with the upcoming halving, have seen price predictions from bitcoin’s staunchest advocates range from $100,000 to beyond $700,000 – the latter figure being in the enthusiastic hope that bitcoin’s finite supply will ultimately see its market cap rival that of gold. Yet even the most ambitious forecasters often factor in an impending crash, or a price correction as they like to call it.

Moments after hitting $69,000 on Tuesday, bitcoin suffered a massive correction, dropping more than $10,000 in a matter of minutes as a result of a selling frenzy that some market watchers had predicted.

The new all-time-high offered an opportunity for people to cash out after buying in late to the last record-breaking rally in 2021. Online searches for “sell bitcoin” quadrupled following the new peak, according to Google Trends data, indicating a momentary shift in sentiment.

But it wasn’t long before bitcoin had recovered, reaching above $70,000 for the first time on Friday, as a new wave of buyers kept the cryptocurrency’s upward momentum going.

A significant portion of these new buyers come in the form of institutional investors in the US, with the spot ETFs bringing financial giants like BlackRock and Fidelity into the market for the first time. These trillion-dollar asset management firms could fundamentally change the crypto market, bringing much-needed stability to a space previously dominated by retail investors.

“The inflows from bitcoin ETFs have seen firms buying 11 times more than is being mined each day,” Muneeb Ali, co-founder of crypto app firm Trust Machines, tells The Independent. “That’s within only two months of being publicly traded ETFs. Bitcoin season two has only just begun.”

Other industry figures believe bitcoin is yet to see the same hype of previous cycles from retail investors, though renewed interest from a fresh record high could provide the fuel for another leg of this rally.

Ian Rogers, an executive at the leading crypto wallet Ledger, tells The Independent that bitcoin has proved its staying power in its 15-year history, which could further boost consumer confidence in the cryptocurrency.

“Bitcoin is the best-performing asset of the last 10 years, and more and more people are willing to hold it as a hedge against currencies which inflate year after year,” he says. “Simple supply and demand drives the price of this programmatically scarce asset higher as more people want to hold, and holders don’t want to sell.”

Alex Adelman, CEO of bitcoin rewards platform Lolli, adds: “With bitcoin reaching a new all-time high, it is poised for accelerated growth in the coming months. We have historically seen bitcoin’s prices quickly double after breaking its previous all-time highs, and we could see bitcoin’s price increase past $100,000 with the upcoming halving event.”

It may feel inevitable that the latest record will soon be eclipsed but, as every other price cycle illustrates, a fall feels almost inevitable. The question is when. There are already cracks beginning to show, with markers previously used to judge the direction of the market giving indications that a correction may well be on its way.

One such metric is the aptly named Bitcoin Fear and Greed Index, which takes in data from exchanges and online searches to determine market sentiment. On Friday, it reached its highest reading since the 2021 bull run, warning of “extreme greed”. Bitcoin may be back, but for how long?