Bitcoin has been on a remarkable upward trajectory, inching closer to surpassing its all-time high. The digital token surged by 8% on Monday, reaching $67,310, significantly higher than its $44,000 valuation at the beginning of the year and just a stone's throw away from its previous record of around $69,000 set in November 2021.
One of the key drivers behind this surge is the growing demand for spot bitcoin exchange-traded funds (ETFs). These ETFs provide investors with a less risky way to invest in cryptocurrency, attracting a substantial influx of capital this year. Market experts believe that investors are increasingly viewing bitcoin as an uncorrelated asset, making it an attractive option for diversifying their portfolios.
Spot bitcoin ETFs differ from regular bitcoin ETFs in that they directly hold bitcoins as the underlying asset, rather than bitcoin futures contracts. Each spot bitcoin ETF is managed by a firm that issues shares based on its bitcoin holdings, acquired from other holders or through an authorized cryptocurrency exchange. These shares are then listed on traditional stock exchanges.
The approval of spot bitcoin ETFs by the U.S. Securities and Exchange Commission (SEC) in January marked a significant milestone for the cryptocurrency market. Since then, investors have poured approximately $7.35 billion into the 11 different funds available, according to Bloomberg. Major institutional players such as BlackRock and Fidelity Investments have also entered the market, offering their own spot bitcoin ETFs.
Bitcoin's recent price rally actually began several months earlier in 2023 when it reached a 19-month high of around $41,000 in December. Analysts attributed this surge to several factors, including anticipation of the SEC's approval of spot ETFs, expectations of Federal Reserve rate cuts, and the upcoming halving event, which reduces the reward for mining bitcoin by half.
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