For investors, jumping on the Bitcoin uptrend is like catching a golden ticket, especially after its staggering 91% surge to $52,000 in just four months, ending on February 15th. With its current trillion-dollar valuation, Bitcoin has secured its spot among the world’s top 10 tradable assets, even surpassing Warren Buffett’s Berkshire Hathaway, valued at $875 billion.
To hit $70,000 from its current $52,000 mark, Bitcoin needs another 34.5% increase, equivalent to a $350 billion market cap surge. This move would elevate the cryptocurrency ahead of silver. The burning question: do current conditions support Bitcoin’s $1.35 trillion valuation?
Some argue Bitcoin cleared those hurdles back in November 2021 when it hit an all-time high of $69,000. Now, repeating that feat seems more plausible, with the approval of U.S. Bitcoin spot ETFs and the resolution of certain risks like Binance’s legal battles with regulators and FTX exchange’s bankruptcy proceedings.
Bitcoin’s All-Time High Driven by Low Interest Rates and Soaring Inflation
The rock-bottom fixed-income yields in November 2021 left investors hungry for higher returns, pushing them towards riskier assets. Meanwhile, U.S. inflation, measured by the Consumer Price Index (CPI), skyrocketed to 6.8% compared to the same period last year, marking the highest level since June 1982. These conditions strongly favored scarce assets, while stock market investors fretted over global supply chain disruptions and the lingering impact of COVID-19 on economic activities.
The latest CPI inflation data for January 2024 shows a 3.1% increase compared to the previous year, still surpassing the U.S. Federal Reserve’s target but kept in check to some extent. It might seem naive to believe that current inflation poses an equivalent risk to when Bitcoin hit its all-time high. Investor expectations indicate a 10.9% increase in S&P 500 companies’ earnings, up from 3.8% in 2023. Hence, investors have less incentive to seek alternative assets compared to late 2021.
Spot ETFs Will Transform Bitcoin into a Mature Asset Class
Since its launch on January 11th, the Bitcoin spot ETF industry has attracted an impressive $4 billion in net inflows in the U.S.
One significant point to note for Bitcoin is the emergence of institutional capital. However, its price still remains below 25% of its all-time high of $69,000, or even lower when adjusted for inflation or total money supply.
The acceptance rate of Bitcoin has increased, but the estimated price surge to over $100,000 is still not a reality. On the bright side, a market capitalization of $3 trillion was once a distant dream in November 2021, but it has become a reality for companies like Microsoft and Apple. So, as long as the dollar continues to weaken, there is still hope for Bitcoin to rise above $70,000. However, this is unlikely to happen before the halving event in April.