Bitcoin soars to record high, then tumbles

Bitcoin touched a record high on Tuesday (5 March), fueled by investors pouring money into US spot exchange-traded crypto products and the prospect that global interest rates may fall.

The world's largest cryptocurrency hit a high of $69,202, topping November 2021's all-time peak of $68,999.99. Investor interest has increased since the Securities and Exchange Commission approved 11 spot bitcoin ETFs in late January. It then reversed course and was recently down around 7% at $63,400.

"The bitcoin all-time high marks a turning point for crypto," said Nathan McCauley, CEO and co-founder of crypto platform Anchorage Digital. "Traditional institutions were once sitting out; today, they are here in full force as the principal drivers of the crypto bull market."

The cryptocurrency's latest meteoric rally may have more legs than in 2021 as more institutional investors commit long-term money that could help the token sustain its high levels this time, some experts believe.

Bitcoin's nearly 160% ascent since October, of which 44% came in February alone, marks a sharp contrast to 2022, when the market was beaten into an 18-month long crypto winter, plagued by a string of high-profile corporate bankruptcies and scandal.

Net flows into the 10 largest US spot bitcoin funds reached $2.2 billion in the week ended March 1, with more than $2 billion of that going into BlackRock's iShares Bitcoin Trust IBIT.O, according to LSEG data.

"Bitcoin has essentially been going straight up for several days," said Steve Sosnick, chief strategist at Interactive Brokers. "It's normal to see a little bit of profit taking, when any asset becomes so extended."

RISK ON

In addition to demand from a wider pool of investors, bitcoin, and crypto generally, has gotten a boost from the prospect of the Federal Reserve cutting US interest rates, which often prompts investors to divert capital into assets that are higher yielding or more volatile.

"One part of (bitcoin's rally) has to do with the generally positive sentiment on risk in general," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. "You can see that in the all-time high in the S&P 500 and Nasdaq."

Investors have lapped up crypto, mega-cap technology stocks and investment-grade corporate bonds in particular this year.

Also on Tuesday, gold struck a record high, moving further above $2,100 per ounce in a rally sparked by growing bets for a US interest rate cut in June.

"(Cryptocurrencies) are now being used as an alternative to using gold when markets are looking to hedging against increased risks, higher interest rates," said Stuart Cole, chief economist at Equiti Capital. "So no surprise I think that when you see the gold price rallying, cryptos are doing the same."

Analysts say bitcoin also benefited ahead of April's so-called halving event - a process that takes place every four years in which the rate at which tokens are released is cut in half, along with the rewards given to miners.

Supply of bitcoin is limited to 21 million, of which 19 million have already been mined.

Despite its recent popularity, for many investors, bitcoin is simply too volatile and lacks enough real-world applications to be anything other than a speculative asset.

Yet, in addition to the cocktail of flows of money into ETFs, the prospect of constrained bitcoin supply and an eventual decline in US interest rates, some companies are adding crypto to their corporate coffers.

In February, software firm MicroStrategy- a long time holder of bitcoin - said it had recently bought about 3,000 more bitcoins for $155 million, while social media platform Reddit also said in a regulatory filing it had bought small amounts of bitcoin and ether.

On Monday, the number of dollar-pegged stablecoins issued by Tether crossed $100 billion for the first time. Tether issues a stablecoin that is designed to maintain a constant value of $1 and is widely used as a way of moving money in cryptocurrency without being exposed to price swings in other tokens such as bitcoin and ether.

The price of ether, the world's second largest cryptocurrency was last trading at $3,486, well below its record high of $4,867 that it touched in November 2021.

"Active trader positioning in bitcoin now appears fairly long. Valuations for ether and most other tokens remain below their highs from the previous crypto cycle," said Zach Pandl, head of research at Grayscale Investments.

Crypto stocks were trading lower on Tuesday, with shares in Coinbase down 5.4% and shares in crypto miners Riot Platforms and Marathon Digital down 9.1% and 13.4%, respectively.