He cryptocurrency market has been booming since mid-October, going from a market capitalization of just over $1 trillion to over $2.2 trillion at the end of February.
While the overall crypto market remains below its all-time high near $3 trillion set in November 2021, one cryptocurrency is rapidly approaching its previous all-time high. The unconditional cryptocurrency (if it exists) bitcoin (CRYPT: BTC) It is within reach of its maximum price of around $69,000 set on November 10, 2021.
Here's why it could be a smart decision to buy before it sets a new all-time high.
Demand is growing thanks to ETFs
He price of a cryptocurrency Like Bitcoin, it is largely determined by supply and demand. When demand grows faster than supply, the price increases.
The SEC approved a handful of new Bitcoin spot ETFs in January. Unlike previous Bitcoin funds, the new ETFs can hold Bitcoin directly instead of investing in derivatives. That's a big change in the market.
The ETF approvals opened the door for more investors to buy Bitcoin. In particular, it is now much easier for institutional investors to gain exposure to Bitcoin, as well as for investors saving for retirement in an IRA or 401(k) account. That is to say, there is much more potential demand for Bitcoin thanks to these new ETFs.
However, in the first few weeks after the approval of the ETFs there was no large increase in demand for Bitcoin from the ETFs. This is because one of the ETFs, the Bitcoin Trust in Grayscale, experienced significant capital outflows from shareholders due to its relatively high expense ratio. While Grayscale remains the largest Bitcoin fund, selling pressure has eased in recent weeks. As a result, net inflows to all Bitcoin ETFs have started to grow much faster. So far, more than $6.7 billion has been added to Bitcoin ETFs since their approval on January 11.
Supply will start increasing more slowly soon
On the other side of the equation, Bitcoin supply growth will see a major slowdown in the near future.
The next Bitcoin โhalving,โ which reduces the block reward to 3.125 Bitcoin from 6.25 Bitcoin, will take place in April. This means that miners will receive less Bitcoin for the same amount of work, and it also means that the growth rate of Bitcoin supply will slow down. Again, if supply grows more slowly than demand, the price will increase.
The first three halvings in Bitcoin history have corresponded with bull runs for Bitcoin. Many expect the upcoming halving to have a similar impact on the market.
The Federal Reserve could push more investors into cryptocurrencies
If the Federal Reserve begins to reduce interest rates, it could reduce the attractiveness of lower-risk investments like Treasury bonds. That money will move into riskier assets like stocks and cryptocurrencies.
While the Federal Reserve has not begun cutting interest rates, we have already seen this dynamic begin to play out. Stocks have risen significantly since the Federal Reserve suggested it could begin cutting rates in 2024, as has the cryptocurrency market. While the Federal Reserve has suggested rates could stay high for longer, the market is still pricing in three or four rate cuts this year. If rates fall faster than that, it could drive greater demand for Bitcoin. In the long term, investors should expect rates to fall further, pushing more investors into riskier assets.
These three catalysts could take Bitcoin well above its all-time high. While we are still a little ways away from setting a new record, now is a good time to invest.
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Adam Levy has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.
1 of the Top Cryptocurrencies to Buy Before It Hits a New All-Time High was originally published by The Motley Fool
