Bitcoin Rides A Fire-Breathing Rally, Topping $50,000

Bitcoin Rides A Fire-Breathing Rally, Topping $50,000
Reda Farran, CFA

21 days ago2 mins

Bitcoin surged above $50,000 this week for the first time in over two years, signaling a big change in appetite after a series of scandals and wipeouts led many investors to shun crypto. The latest uptick has propelled bitcoin’s gains for the year to over 15%, fueled by three big factors.

First are the newly approved US ETFs that invest directly in bitcoin. The funds, which offer folk an easy way to gain exposure to the world’s biggest cryptocurrency, have attracted more than $9 billion in net inflows since their launch a month ago. That has more than offset the roughly $6 billion of outflows from Grayscale’s fund, a trust that converted to an ETF but kept its hefty, unpopular fee of 1.5% (that’s more than a percentage point higher than most of its rivals are charging).

Second is bitcoin’s so-called halving, now just two months away. The once-every-four-years event slashes, by half, the reward that miners get for operating the powerful computers that verify transactions on the blockchain. This process is designed to control supply inflation by decreasing the rate at which new bitcoins are created. Previous halving events have led to big rallies in the crypto’s price, so you can understand why traders are feeling pretty amped.

Third is the overall better mood among investors. Market players increasingly anticipate that the world’s central banks will lower interest rates this year, making riskier assets like stocks and crypto more enticing. What’s more, China rang in the Lunar New Year last weekend, and that’s historically been a good time for bitcoin. The Year of the Dragon has already breathed some fire into bitcoin’s price, and Chinese investors might be motivated to gravitate toward the world’s biggest crypto by more than just the zodiac. Bitcoin could offer them a place to look for returns, with the country’s property market, currency, bond yields, and stocks seeming far less auspicious these days.

With so much driving it, it’d be easy to think that bitcoin can only push higher. On the other hand, you might be wondering whether traders are starting to get ahead of themselves. The bottom part of the chart shows bitcoin’s relative strength index (RSI) – an indicator used by many technical analysts. Simply, the RSI ranges between zero and 100. A reading below 30 means the security is “oversold” (and could therefore be a buying opportunity), while above 70 indicates that the asset is “overbought” (and could therefore be at greater risk of a fall). And that’s exactly where bitcoin lies at the moment, potentially indicating that a pause or a reversal could be on the horizon.



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