Bitcoin, the world’s largest cryptocurrency, has been on a strong uptrend since mid-October, reaching its highest level since May 2022. The rally has been driven by several factors, including speculation about a possible approval of a spot-based Bitcoin exchange-traded fund (ETF) by the SEC, diverging from traditional equity markets amid geopolitical turmoil, and growing adoption by institutional and retail investors.
One of the main catalysts for the Bitcoin rally was a false rumor that circulated on October 15, suggesting that the SEC had approved a Bitcoin ETF by Valkyrie Investments. While the rumor was quickly debunked, it sparked a wave of buying activity that pushed Bitcoin above $30,000 for the first time since August.
Multiple Factors Drove Bitcoin’s Rally
The market sentiment was further boosted by the news that the SEC had decided not to appeal the court ruling that allowed Grayscale Investments to convert its Bitcoin trust into an ETF, and had dropped its lawsuit against Ripple executives over the sale of XRP tokens.
The SEC has yet to approve any spot-based Bitcoin ETF, which would track the price of the underlying asset directly, unlike futures-based ETFs that track the price of Bitcoin futures contracts. However, many investors are hopeful that the regulator will eventually greenlight such a product, as it has several applications pending review.
The next deadline for the SEC to rule on a spot-based Bitcoin ETF is in January 2024, when it will decide on the proposal by ARK Invest and 21Shares. Another factor that has contributed to the Bitcoin rally is the divergence from traditional equity markets, which have been under pressure due to ongoing unrest in the Middle East and uncertainty over the U.S. Federal Reserve’s monetary policy.
Bitcoin has shown a negative correlation with the Nasdaq 100 index, which tracks the performance of major technology companies, for the first time since July. This suggests that Bitcoin is acting as a hedge against market volatility and inflation risks.
The Bitcoin rally has also been supported by growing adoption by both institutional and retail investors. According to data from Kaiko, a crypto market data provider, trade volume and volatility have surged in the past two weeks, reaching six-month highs.
Derivatives markets have also seen increased activity, with funding rates for Bitcoin perpetual futures turning positive across exchanges, indicating a bullish bias. Moreover, altcoins, or cryptocurrencies other than Bitcoin, have also shown growth potential, with some outperforming Bitcoin in terms of returns.
The outlook for Bitcoin remains positive, as long as it can sustain its momentum and break above key resistance levels. Some analysts expect Bitcoin to reach new highs by the end of the year, while others are more cautious and warn of possible corrections along the way.
