Bitcoin Soars to $50,000 Amid Strong ETF Demand

Bloomberg — Bitcoin (XBT) jumped to $50,000 for the first time in more than two years, marking a remarkable comeback after a series of scandals and bankruptcies in the cryptocurrency industry that raised questions about the viability of the digital asset.

The original cryptocurrency has tripled in value since the start of last year, recovering from a 64% drop in 2022. Bitcoin last traded at $50,000 in December 2021. The price is still below the all-time high of nearly $69,000 reached in November 2021.

The wild price swings seen since Bitcoin’s inception over a decade ago have always attracted speculators. While the proposal was initially touted as an alternative to the traditional financial system, the latest rally has been fueled by optimism that last month’s approval in the United States of exchange-traded funds to directly own bitcoin will lead to wider acceptance.

“There’s a lot of talk about money coming into this asset,” said Matt Maley, chief market strategist at Miller Tabak & Co. “I also want to point out that impulsive players are delighted.”

The resurgence in cryptocurrency prices comes as investors in broader financial markets are once again taking on risk amid expectations that the Federal Reserve is moving toward looser monetary policy. Higher interest rates tend to reduce the attractiveness of riskier assets such as cryptocurrencies.

“Risk appetite has also permeated digital assets,” said Chris Newhouse, DeFi analyst at Cumberland Labs.

Bitcoin has recovered all of its losses since the collapse of the TerraUSD stablecoin in May 2022. which caused a wave of failures that ultimately led to the collapse of Sam Bankman-Fried’s FTX exchange in November 2022.

By the time FTX collapsed, the cryptocurrency market had already been in a downturn for months, with TerraUSD, hedge fund Three Arrows Capital and lender Celsius Network suffering. But the fall of FTX, once one of the largest cryptocurrency exchanges by trading volume, was even more devastating as token prices stagnated and liquidity dried up.

Now, with Bankman-Fried found guilty of fraud and Binance co-founder Changpeng Zhao awaiting sentencing for failing to comply with anti-money laundering policies and violating US sanctions, Cryptocurrency prices have risen as analysts see fewer looming risks for the industry.

Nine U.S. Bitcoin exchange-traded funds debuted on January 11, and on the same day, the more than decade-old Grayscale Bitcoin Trust (GBTC) became an ETF. The availability of ETFs promises to expand the investor base for the token. The new funds have raised a total of about $8 billion so far, while outflows of more than $6 billion from Grayscale’s fund since its conversion now appear to be winding down.

“The decline in recent weeks was largely due to the Grayscale exit,” said Greg Moritz, co-founder of cryptocurrency hedge fund AltTab Capital. “Those outflows have now slowed and we are seeing net inflows increase, as expected.”

–With help from Isabelle Lee.

Read more at Bloomberg.com.