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Macroscope | Bitcoin’s problems remain despite its remarkable staying power
- Bitcoin has staged a comeback from a difficult 2022, with its price rising higher than US$73,000 on the back of support from US regulators
- The approval of spot bitcoin ETFs is driving interest but also raising fears of the cryptocurrency losing its status as an unregulated, decentralised product
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As far as comebacks go, bitcoin’s could be one for the ages. Towards the end of 2022, it looked like the dominant cryptocurrency would no longer be able to stage one of the dramatic recoveries that has typified the relentlessly volatile trading environment in digital tokens during the past several years.
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Not only did the steep rise in interest rates crimp demand for “risk assets”, the spectacular collapse of Sam Bankman-Fried’s FTX cryptocurrency exchange – at the time the world’s second-largest – further corroded what little remained of public trust in a sector beset by high-profile scandals and swindles.
Bitcoin has also had to contend with a regulatory crackdown on cryptocurrency the world over and deep uncertainty about the outlook for the global economy. Despite all these headwinds, however, the original virtual currency has risen from the ashes yet again, surging more than 160 per cent since mid-October last year to more than US$73,000 on March 13, an all-time high.
Nearly half these gains have occurred since the beginning of this year. On January 10, the United States Securities and Exchange Commission (SEC) provided a major fillip to cryptoland by approving applications by a dozen or so firms, including Wall Street giants such as BlackRock and Fidelity, to launch the first batch of exchange-traded funds (ETFs) that track the spot price of bitcoin.
This is a milestone in the development of the cryptocurrency asset class, not least because of how long the SEC rejected such applications. More importantly, the launch of the spot bitcoin ETFs makes it easier for a broader range of investors to buy the token without directly holding bitcoin itself.
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The facts speak for themselves. The bitcoin ETFs have attracted net inflows of almost US$10 billion since they began trading two months ago. BlackRock’s ETF alone received US$10 billion in just seven weeks. This is the shortest time ever for an ETF to accumulate such a sum, and a feat the first gold ETF took over two years to accomplish after it began trading in 2004, according to Bloomberg data.
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