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‘This Is Officially a Craze’

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Key Speakers At Bitcoin 2023 Conference

Photo: Eva Marie Uzcategui/Bloomberg via Getty Images

Well, would you look at that number go up. Bitcoin crossed north of $60,000 again on Wednesday. The price of Satoshi Nakamoto’s creation is now near the all-time high of November 2021, after which crypto was consigned to the trash heap of terrible ideas and frauds, the stuff of easy marks and people with questionable taste. At that point, most of those not among the laser-eyed or orange-pilled probably decided it was safe to ignore bitcoin basically forever. Well, it’s back.

The cryptocurrency’s dramatic rise from $25,000 in October to today’s level — but especially the steep recent leg — has already been dubbed the FOMO rally. Bitcoin’s price rose by about 45 percent this month, and if the past two days of giant gains are any indication, the rally may only be gaining momentum.

What is going on? Something very big happened last month. On January 10, the Securities and Exchange Commission — unhappily, but feeling its hand had been forced by a court decision — approved a batch of new bitcoin investment products. Exchange-traded funds have in recent years become Wall Street’s preferred way to invest (whether in a 401(k) or a hedge fund). They are essentially investment vehicles, often broad, complicated, or exotic, that trade like regular shares of stock. But regulators had rejected bitcoin ETF applications for a decade, citing a range of concerns about the markets and pricing and the potential for fraud.

When nine new bitcoin ETFs launched shortly after the SEC’s decision, it was unclear whether Wall Streeters would actually start shoveling money into the funds as bitcoin’s tireless promoters had predicted. Now the verdict is in — and investors big and small are definitely shoveling huge amounts of money into the new ETFs, which are in turn using all those new funds to buy and hold (at least for now) spot bitcoin. BlackRock is the biggest player among the new ETFs, and its bitcoin fund (ticker IBIT) saw its second consecutive day of $1 billion in new investment on Tuesday, dwarfing many predictions for inflows. Wednesday was already on track to be even better, noted Bloomberg ETF analyst Eric Balchunas, who has been a leading voice in covering the new space:

To see these new bitcoin ETFs doing volume numbers that rival established behemoths like those tracking the S&P 500 and NASDAQ is a shock to pretty much everyone.

So is this a new bubble? And is it about to burst? There have long been predictions in cryptoland that ETFs would be the key to a new dawn in the value of digital assets. The idea here is that since ETFs are trusted, regulated, well-understood instruments accessible by a traditional brokerage account, they would bring in a new class of investors — including 401(k) holders and rich boomers who had no desire to set up an account at a crypto exchange. This has been undeniably true, at least to a point. Balchunas dug deeper and, judging by the size of the ETF trades, much of the buying looks to be from small, nonprofessional investors. In fact, if you look at the bigger picture, the vast majority of the money pumping up the value of bitcoin appears to be from people buying it directly, without the aid of these Wall Street intermediaries.

On February 26, the total value of all the world’s bitcoin was $1.01 trillion. As I write this on February 28, it’s $1.2 trillion. The sudden creation of $200 billion in new wealth in two days is pretty dramatic in any context. What’s surprising is that the total size of the crypto market is still pretty far below its roughly $3 trillion peak. Bitcoin alone is now worth more than all other cryptocurrencies combined and is only getting bigger as more new money flows in.

It’s impossible to say whether a new crypto bubble may be forming, much less when and how it could pop. The bullish case is that if there’s a decline in interest rates this year combined with expected technical changes to bitcoin’s coming supply, the FOMO and ETFs can only make the price go even higher. Yet there is still no easy way to use bitcoin, and nothing is underlying its value except a belief that it will one day be worth more. So buyer beware. Just remember, though, none of this has to make any sense.



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