Here's Why This Bitcoin Rally Is Different

Bitcoin (BTC) is experiencing a remarkable year in 2024, having increased by 130% year to date and reaching a significant milestone of $100,000 following the presidential election.

Despite past rallies, where Bitcoin surged 155% last year, 303% in 2020, 1,369% in 2017, and an astonishing 5,481% in 2013, this current rally appears distinct. So, what sets this Bitcoin rally apart from those of the past? Let’s explore.

The Impact of Spot Bitcoin ETFs

A significant factor contributing to this year's rally is the introduction of spot Bitcoin exchange-traded funds (ETFs) in January. These new ETFs have attracted substantial investor interest, accumulating tens of billions of dollars in assets. The largest spot Bitcoin ETF, the iShares Bitcoin Trust, currently manages $53 billion.

This influx of investment is anticipated to continue as we approach 2025. In just the first two weeks of December, these ETFs received $4.4 billion in new investments. Notably, on two occasions during this period, over $500 million flowed into the ETFs. The consensus among industry observers is that inflows into Bitcoin ETFs could rise even further in 2025.

This trend is crucial because the buying pressure from these ETFs helps stabilize Bitcoin's price, providing a solid foundation against potential selling pressure in the market.

Many Bitcoin holders may contemplate taking profits now that the price has exceeded the $100,000 threshold. However, the presence of a large number of buyers, eager to invest via ETFs, may work to support the price further.

This momentum suggests a stronger foundation for this Bitcoin rally than previous ones, which often resembled short-lived speculative booms. In contrast, this rally enjoys a broader base of support from both individual and institutional investors who utilize ETFs to diversify their portfolios.

Influence of the Pro-Crypto Trend in Government

The recent rise in Bitcoin's value post-election is significantly tied to the pro-crypto stance of the incoming Trump administration. During his campaign, Bitcoin emerged as a key issue, and President-elect Donald Trump has voiced his backing for cryptocurrencies. He has publicly discussed his plans for crypto on the floor of the New York Stock Exchange.

Trump's commitment to the crypto space includes nominating a pro-crypto individual to lead the Securities and Exchange Commission (SEC) and establishing a "White House AI and crypto czar" position to monitor cryptocurrency developments. Furthermore, he promised to support the Bitcoin mining sector and aim for the United States to become the global “crypto capital.”

One potentially game-changing initiative is the proposed formation of a strategic national Bitcoin reserve, which could lead to the U.S. government acquiring 200,000 Bitcoins annually for the next five years. This plan means that after five years, the U.S. could hold 5% of the total Bitcoin supply.

The unprecedented governmental support for Bitcoin is reshaping public attitudes about cryptocurrencies. What was once seen as primarily a tool for illegal activities is now increasingly viewed as a hedge against inflation and a means of building generational wealth.

Outlook for Bitcoin's Future

This Bitcoin rally could prove to be longer-lasting and more stable than previous surges. Historically, Bitcoin's prices have been extremely volatile; for instance, after a staggering 5,481% increase in 2013, it subsequently dropped 58% the following year. Similarly, after a 1,369% rise in 2017, it lost 73.5% in 2018. While Bitcoin experienced a 303% increase in 2020, it subsequently fell 64% by 2022. Such fluctuations contribute to the perception of Bitcoin as a risky investment.

For current Bitcoin investors, the hope is that the newly graded ETFs will absorb the extra selling pressure in the market, potentially smoothing out Bitcoin's volatility. If the Trump administration can fulfill its pro-crypto promises, the price of Bitcoin might continue to rise steadily over the next four years.

Investment decisions should be approached with caution and informed insight.

Bitcoin, ETFs, Crypto