Bitcoin (BTC-USD) hit an all-time high on Tuesday before retreating as some investors locked in their gains.
A new frenzy surrounding the world’s largest cryptocurrency pushed the price to $68,869, surpassing the previous high of $68,789 set on November 10, 2021. Then, within a matter of hours, it tumbled back below the $60,000 level.
The new high reinforced a remarkable comeback for bitcoin after a 2022 crash that caused huge losses for investors and caused the demise of several major players in the industry, including cryptocurrency exchange FTX and its founder Sam Bankman -Peace.
The dramatic pullback from Tuesday’s high provided a reminder of how much volatility still surrounds this digital asset. At one point it was down 11%, the kind of drop last seen during the tumult of 2022.
So far this year, bitcoin has ridden a wave of excitement caused by a series of mock bitcoin exchange-traded funds that began trading in January. Those funds gave everyday investors widespread exposure to the digital asset, sparking expectations of a record year.
Read more: With bitcoin nearing $69,000, does it deserve a place in your portfolio?
“Demand for these ETFs has far exceeded anyone’s expectations,” Bitwise Asset Management’s chief investment officer Matt Hougan told Yahoo Finance. Bitwise was one of the firms that received the green light from the Securities and Exchange Commission to manage one of these funds.
Several money managers are now predicting that the digital asset could rise above $100,000 before the end of 2024.
Investors bid other cryptocurrencies and related stocks higher as well. Ether (ETH-USD), the second largest cryptocurrency, has outperformed bitcoin by more than 7% since the beginning of the year. Several so-called meme coins – such as dogecoin (DOGE-USD), shiba inu (SHIB) and dogwifhat (WIF) – are also rising.
One sign of the new mania surrounding bitcoin is the trading activity in the ETFs launched in January. They pulled in nearly $8 billion from investors in just two months, with the lion’s share going to Wall Street heavyweights like BlackRock ( BLK ) and Fidelity Investments.
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This activity has been a boon for major crypto trading venues, including Coinbase (COIN) and Robinhood (HOOD). Coinbase is the crypto custodian for a number of these ETFs and earns fees tied directly to these products.
Demand for trading on Coinbase was so intense last week that it led to a snafu where some customers showed $0 balances in their accounts for part of one day. CEO Brian Armstrong reassured customers that their funds are safe.
Some individual customers reported seeing zero balances in their accounts again on Monday.
Supply and demand
There is also a basic law of economics in the new market frenzy surrounding bitcoin: supply and demand. Fresh demand from the ETFs means that more bitcoins are bought each day on average than new coins are created.
The new ETFs have bought a daily average of 3,320-4,300 coins since the start of February, three analysts working for cryptocurrency managers said last week.
This is significantly more than the 900 coins created daily by the bitcoin network in the same period.
More supply problems are expected for bitcoin this year in light of the “halving” scheduled to take place 46 days from Monday.
When it was created by pseudonymous developer Satoshi Nakamoto in 2009, bitcoin was programmed with a fixed supply schedule that was cut in half every four years.
After that next cut, the so-called halving, the daily supply of new coins will be 450 instead of 900.
“We’re in potentially the sweet spot here,” Mark Connors, head of research for crypto asset manager 3iQ, told Yahoo Finance. “We can’t produce more bitcoin to meet demand.”
Connor’s firm has set its mid- to high-level price target for bitcoin this year at between $160,000 and $180,000. Next year it expects a striking target of $350,000 to $450,000 per coin.
Another money manager, VanEck, set an $80,000 2024 price target for bitcoin last quarter.
“Admittedly, those estimates are a little out of date now,” said Matthew Sigel, head of digital asset research for VanEck.
There are certainly other factors at work in the current supply crunch beyond the demand for ETFs.
One example: The US government has seized 215,000 BTC since 2020, according to data tracked by 21Shares. The stash contains seizures in various seizures, such as from the 2016 hack of crypto exchange Bitfinex.
The fact that they are only being held and not currently being sold has limited supply. But that could change when the government has to hand out some of it to victims, which might mean selling.
As the asset price rises, many institutional buyers will also need to take profits to maintain the balance of their portfolios. It can also affect the demand-supply imbalance.
There are also certainly less fundamental, and more psychological, factors driving this new rally, including the fear of missing out.
Interest in bitcoin among the general U.S. population is far from its peak compared to previous rallies, Alex Thorn, head of research for Galaxy Digital, said by email Monday.
Searches for “bitcoin” on Google and retail usage of crypto apps remain well below levels seen during the last bull market, according to Thorn.
“We haven’t even begun to reach the heights it’s likely to reach,” Thorn added.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto and other areas in finance.
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