Bitcoin recently reached record price highs. With everyone from governments to corporations looking to eat up the supply, will bitcoin continue to break records?
It has been a great week for crypto. Bitcoin continues to hold a strong position, with huge gains from many of the altcoins, including Ethereum. Speculation is rife regarding its current trajectory. Will it continue to carry on with this upward trend, or has the bull run come to a grinding halt? To better understand the possible outcomes, we look at what has made this current sprint so spectacular.
Changing Regulatory Attitudes
At the top of the many factors contributing to the high price of Bitcoin are changing regulatory attitudes towards it in the United States. A more crypto-friendly administration has entered the White House, which quickly set about instigating a Strategic Bitcoin Reserve. Many states soon followed suit, bringing in their own systems to capitalise on the value of the coin.
Most people believe this is the defining factor that made bitcoin reach its record high above the $222,000 mark. A current bitcoin price of $118,137 is where it seems to have settled. While many are predicting that altcoin season is here, with exchanges showing great gains for Ethereum and others, Bitcoin should not be written off. There are still factors at play that could push it even further.
This changing attitude was actually put in place long before the new government. The start of 2024 saw the Securities and Exchange Commission give the go-ahead for spot bitcoin Exchange Traded Fund products, and later ones based on Ethereum. This opened the door for institutional investors to buy into bitcoin, without the inherent risk of owning it themselves. In many ways, this was the start of the change in attitudes towards not just bitcoin, but cryptocurrencies.
The Dwindling Bitcoin Supply
April 2024 was also a bitcoin halving event. This takes place roughly every four years, and is a point at which the reward for mining bitcoin is halved. The reason for this is to safeguard against inflation. Essentially, the price of producing bitcoin becomes lower.
The difference between this event and others is that not only have miners had to contend with their output halving in value, but other costs are up. Mining uses a lot of energy, which is costing more. Add that to the expensive hardware required, and it has become less profitable with fewer coins being mined.
Many have moved to places where energy is cheaper and more abundant. These can be in the form of remote African countries, or even just rural America. Cleaner, cheaper sources are being looked for as a result. Yet miners are not the only ones searching for it: AI is on the horizon.
The desire for AI and its growth means that the same resources required for mining are needed by artificial intelligence. These include data centres and power. Thus, many miners have now made the switch, selling their services and equipment to major companies looking to grow the sector.
The Corporate Acquisition of Bitcoin
Over the past year, the corporate acquisition of bitcoin has been swift. Everyone from struggling gaming retailers to Spanish coffee chains has tried to bolster their share prices by acquiring bitcoin in their reserves. Many have been inspired by Michael Saylor’s Strategy, who has voraciously acquired cryptocurrency and changed their game plan from a software producer to one that buys bitcoin. As the price of this has risen, so has the company share value.
Microstrategy is now the largest public corporate holder of bitcoin with around 607,770 coins. Second in line, and way behind, is Mara Holdings with 50,000. Next is XXI with 37,230. But many others are buying in smaller amounts. The worry is that many of them sell off shares to do this, diluting the value of their company and running their Net Asset Value perilously low.
Will The Rise Continue?
There are signs that the bullish run of bitcoin may be coming to a slow halt. After their record highs, prices seem to have consolidated around the $120,000 mark.
Outflows from spot bitcoin exchange-traded products have also been strong. Around $67.93 million exited these at the start of July’s penultimate week. High numbers of profit taking by short-term retail investors were also noted. Should this combination continue, it may signal further downward price corrections.
There have also been large movements and sell-offs from some whales, many of which had held dormant wallets for long periods of time. Using historical data, spikes in these sales during the 2017 and 2021 bull runs were then followed by a crash in the price of bitcoin.
The truth is that the future for bitcoin is unwritten. Historical data yields very little, as we are in totally unmapped territory. Digital currencies are a new concept that has been around for less than 20 years. No one knows how markets react to them and how they really operate. Despite current confidence, they also remain extremely volatile. This poses problems for any investors, who must weigh up the risk-to-reward ratio and make sure they diversify their portfolio.
