Bitcoin has experienced a dramatic roller-coaster ride in the past 24 hours, surging to a new record high before plummeting sharply.
On the evening of March 5, Beijing time, the world's largest cryptocurrency briefly surpassed $69,000 per coin, setting a historic milestone. Its total market capitalization exceeded $1.3 trillion, marking a year-to-date increase of over 62%.
However, profit-taking soon triggered a massive sell-off on cryptocurrency exchanges, dragging Bitcoin below the $60,000 mark. The digital asset recorded a sharp decline of more than 10%.
As the sell-off intensified, Bitcoin hovered around $63,500 at the time of reporting. Data from Coinglass revealed that nearly 320,000 traders were liquidated globally. Other smaller cryptocurrencies, such as Dogecoin and Shiba Inu, also fell between 10% and 12%.
MicroStrategy, the publicly listed company holding the most Bitcoin globally, saw its stock plunge over 20% by Tuesday's close. Between February 15 and 25, the firm purchased approximately 3,000 Bitcoins for about $155.4 million, with an average price of $51,813 per Bitcoin.
Background of Bitcoin’s Price Movement
The last time Bitcoin approached its previous all-time high of $69,000 was on November 10, 2021. After that peak, its value declined significantly, hitting a low of around $16,000 by the end of 2022. It wasn't until December 2023 that Bitcoin once again breached the $40,000 mark.
Since mid-February, Bitcoin’s price surge has accelerated due to a combination of factors.
Factors Driving Bitcoin’s Recent Surge
Federal Reserve’s Interest Rate Policy
A recent Goldman Sachs report predicts that the Federal Reserve will implement significant interest rate cuts in 2024—at least four times, with the first cut expected in June.
Lower interest rates reduce borrowing costs and increase liquidity in the market, encouraging more capital to flow into alternative investments like Bitcoin. Additionally, savings and fixed-income products become less attractive to investors in a low-rate environment, further driving interest in cryptocurrencies.
This Wednesday and Thursday, Fed Chair Jerome Powell is scheduled to testify before the U.S. Congress as part of the semi-annual monetary policy hearings. These appearances represent his last public comments before the Fed’s meeting on March 20. Powell is expected to share insights on future rate cuts, though many analysts believe the Fed has not yet signaled a strong case for immediate reductions.
The Upcoming Bitcoin Halving Event
Another major catalyst is the anticipated Bitcoin "halving" event in April. This core feature of the Bitcoin network reduces the block reward by half every 210,000 blocks, effectively controlling the pace of new Bitcoin issuance and its total supply.
Occurring approximately every four years, the halving is expected to reduce the supply of new Bitcoins. If demand remains constant or increases, the decreased supply could push prices higher. In anticipation, traders are entering the market to position themselves for potential gains.
However, a J.P. Morgan report warns that the halving could also negatively impact the profitability of Bitcoin miners. The report suggests that Bitcoin’s network hashrate could fall by as much as 20% after the event, raising the estimated production cost and potentially driving the price down to $42,000.
According to CoinMarketCap, as of March 5, there were 48 days remaining until the next Bitcoin halving.
Approval of Bitcoin ETFs
In January, the U.S. Securities and Exchange Commission (SEC) approved 11 spot Bitcoin exchange-traded funds (ETFs), which began trading on January 11. This landmark decision lowered the barrier to entry for Bitcoin investment, attracting more institutional and retail investors.
The approval also enhanced the legitimacy of cryptocurrency as an asset class. Market response was highly positive: on the first day of trading, Bitcoin spot ETF volumes exceeded $4 billion, and the 11 ETFs collectively reached a trading value of over $3.5 billion.
BlackRock’s iShares Bitcoin Trust (IBIT) reached $10 billion in assets under management in just seven weeks, making it the third-largest ETF in the U.S. by asset flow.
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Frequently Asked Questions
What caused Bitcoin to drop after reaching a new high?
Profit-taking led to a large-scale sell-off on crypto exchanges, causing a sudden drop in buying support and triggering liquidations.
How does the Bitcoin halving affect its price?
The halving reduces the rate at which new Bitcoin is created. If demand remains strong, the reduced supply can lead to price increases, though miner profitability may decline.
What are Bitcoin ETFs?
Bitcoin ETFs are exchange-traded funds that track the price of Bitcoin. They allow investors to gain exposure to Bitcoin without directly holding the cryptocurrency.
Why do interest rates influence Bitcoin’s price?
Lower interest rates make traditional savings and bonds less attractive, leading investors to seek higher returns in alternative assets like cryptocurrencies.
What is liquidation in cryptocurrency trading?
Liquidation occurs when a trader’s position is forcibly closed due to insufficient margin. Sharp price movements can trigger widespread liquidations.
Is Bitcoin a good investment despite its volatility?
Bitcoin has shown long-term growth but is subject to high short-term volatility. Investors should assess their risk tolerance and conduct thorough research before investing.
Conclusion
Bitcoin’s volatility underscores both the opportunities and risks within the cryptocurrency market. While macroeconomic factors, regulatory developments, and internal mechanisms like the halving play significant roles, investors should remain cautious and well-informed.
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