Bitcoin shot to a new historic high on Sunday, surpassing the $125,000 mark. In the past week alone, the largest cryptocurrency by market capitalization has grown by more than 11%. The sharp rise is mainly due to strong demand for US spot exchange-traded funds (ETFs) focused on Bitcoin, but also to growing macroeconomic uncertainty, which is increasing investor interest in safe assets.
Record inflow of money into US ETFs
According to data from SoSoValue, US spot bitcoin ETFs recorded a net inflow of $3.24 billion during the week ending October 3. “Spot” ETFs mean that the funds directly purchase and hold actual bitcoin, rather than simply speculating on its price using financial derivatives. This type of fund gives investors the opportunity to easily invest in cryptocurrency through a traditional exchange without having to technically own and manage it themselves.
The aforementioned capital inflow is the second-largest weekly increase in the history of these funds. At the same time, it shows that the interest of large institutional investors, such as funds, banks, and insurance companies, in cryptocurrencies continues to grow. The strong inflow of money also had an impact on the broader market – tokens of other well-known cryptocurrencies, such as XRP (Ripple’s currency), ETH (ether, the cryptocurrency of the Ethereum network), SOL (Solana), and DOGE (Dogecoin), strengthened by one to three percent during Asian trading, following the growth of Bitcoin.
Political uncertainty in the US supports Bitcoin
The rise in the price of Bitcoin comes at a time of heightened political tension in the United States. The country is facing a continuing government shutdown, a situation in which, due to political disputes, Congress has not approved the budget and some federal agencies and services are forced to limit or suspend their activities. According to analysts, this type of uncertainty reinforces the perception of Bitcoin as a safe haven outside the traditional financial system.
Jeff Dorman, chief investment officer at Arca, noted even before the shutdown began that the only time he buys bitcoin is when society loses confidence in governments and local banks. According to him, bitcoin is likely a good buy at such times.
Macroeconomic factors play into crypto’s hands
Broader economic circumstances also play a significant role. Noelle Acheson, author of the popular newsletter Crypto Is Macro Now, points to a combination of factors that support the growth of the cryptocurrency market. These include the increased risk of new geopolitical conflicts, growing inflationary pressure in the United States, and rising debt around the world, which is raising concerns about the weakening of national currencies.
Another key factor is the loose monetary policy of central banks—i.e., lower interest rates, yield curve control, and massive increases in the money supply (in layman’s terms, “money printing”). According to Acheson, what is good for gold as a traditional store of value is also good for Bitcoin.
October is traditionally a strong month for Bitcoin, and analysts expect this year to be no exception. The seasonal effect, combined with an influx of capital and growing uncertainty, creates an environment in which the largest cryptocurrency has the potential to reach new record levels.
Sources:
https://www.bbc.com/news/articles/ce32eegrlpko
https://cointelegraph.com/news/bitcoin-eyes-big-weeks-ahead-all-time-high
