Before this year, investors predicted the prices of cryptocurrencies could surge in 2024 because of the Bitcoin halving, an event that rewards mining that occurs every four years, as well as the likelihood of interest rate cuts, which benefit most asset classes.
But not many analysts expected the Bitcoin price to skyrocket to the level where it sits today. Richard Teng, chief executive of the world's largest cryptocurrency exchange Binance, said recently he forecast Bitcoin would end 2024 at around US$80,000, but now he expects it to exceed that level before the end of the year.
The world's most popular cryptocurrency soared to an all-time high of $73,750 in mid-March, a 56% increase year to date, succeeding the 2021 peak of $68,000. The price fell significantly after reports of high US inflation in February, making investors uneasy and leading to a sell-off of risky assets such as cryptocurrencies.
But investors didn't have to wait long for the price to climb back. On Monday, Bitcoin gained 7.1% to $70,816, marking the first time the token exceeded $70,000 in more than a week.
Q: WHAT ARE THE FACTORS DRIVING THE PRICE?
Observers credited the launch of spot Bitcoin exchange-traded funds (ETFs) earlier this year for the price surging 350%, rising from a recent crash to $15,000.
The US Securities and Exchange Commission (SEC) approved 11 spot Bitcoin ETFs on Jan 10, 2024. Up to that point, regulators had been reluctant to approve spot Bitcoin ETF applications, citing concerns over market manipulation, fraud, custody and investor protection.
Following the approval, spot Bitcoin ETFs drove Bitcoin prices for two reasons. First, the move further legitimised the asset class, as the cautious SEC lowered regulatory barriers for financial companies to promote crypto products.
More importantly, the creation of spot Bitcoin ETFs significantly shifted the supply and demand curves, with providers needing to purchase physical Bitcoin to offer the product.
Other jurisdictions recently opened the door to allowing similar products, with the UK regulator flagging possible Bitcoin exchange-traded notes.
The Bitcoin halving, which occurs roughly every four years and reduces the amount of Bitcoin, rewards miners for mining new coins.
The rationale is to constrain the supply of new Bitcoin over time, reducing the incentive of miners to mine and releasing fewer new coins into circulation during the mining process.
History suggests Bitcoin rallies going into and shortly after halving events. The three previous halvings in 2012, 2016 and 2020 supported prices, and the upcoming halving in April is expected to do the same, according to analysts.
Suphasit Sitthisaovapark, head of product development and investment strategy at Asset Plus Fund Management, said following the launch of spot Bitcoin ETFs in January, investors have bought 5% of the total Bitcoin supplies over the past couple of months.
With the halving next month, it potentially cause supply shocks later, he said.
In addition, Republican candidate Donald Trump has taken the lead in US presidential election polls. If the Republican Party, which is considered open to digital assets, wins the White House later this year, Bitcoin prices are expected to receive a further boost, said Mr Suphasit.
Q: WHAT ARE THE POTENTIAL IMPACTS OF INTEREST RATE CUTS ON HIGH-RISK ASSETS SUCH AS BITCOIN?
The macroeconomic backdrop has also been supportive of Bitcoin. As a non-yielding asset, bought by some as a store of value, Bitcoin has been pushed higher by the prospect of interest rate cuts in the US.
Policy settings remain restrictive and unaccommodating for non-yielding assets such as Bitcoin. Unlike the last record high for Bitcoin in November 2021, this rally has come despite positive "real" yields, which in theory should push money flow towards cash and treasuries.
However, market expectations for three rate cuts by the Federal Reserve this year provides a tailwind for Bitcoin, as a quicker or deeper cutting cycle potentially provides a bullish driver for the asset.
Bitcoin is often seen as a barometer for risk appetite in broader financial markets.
The appetite for risk recently elevated, with bullish behaviour observed across asset markets. The driving factor behind such strong sentiment is greater liquidity, lower implied volatility and an improving investment outlook, which itself is generated by expectations of lower interest rates globally and a "soft landing" of the US economy.
Q: HOW FAR CAN THE PRICE RALLY GO?
Monday's surge signalled a potential end to the recent correction for crypto markets, with Bitcoin aiming for new all-time highs after breaking to the upside from its consolidation pattern, according to 10x Research, which specialises in digital asset research for asset and wealth managers as well as crypto service providers.
The uptrend is supported by several central banks tilting towards dovish stances, noted the research.
"The Fed signalled it is willing to accept higher inflation for longer, and is eager to slow quantitative tightening," said Markus Thielen, founder of 10x Research.
"The Bank of Japan and Swiss National Bank also surprised on the dovish side. Our upside targets of $83,000 and $102,000 for Bitcoin could slowly be at play."
Sanjay Popli, chief executive of Cryptomind Advisory, anticipates prices could reach $100,000-150,000 this cycle, likely during the second to fourth quarter of 2025.
"We see Bitcoin hitting a new high every cycle," said Mr Popli, including halvings in 2016 and 2020, suggesting investors think carefully as prices vacillate during each cycle.
Robert Kiyosaki, an entrepreneur, investor and author known for the Rich Dad Poor Dad series of personal finance books, predicts the Bitcoin price to hit $100,000 by September 2024.
"If you can't afford a whole Bitcoin, you may want to consider buying one-tenth of a coin via the new ETFs," he posted on X on Monday.