Bitcoin continued its rally again on Wednesday after setting a new record on Tuesday.
The world’s largest cryptocurrency rose by as much as 6.8 per cent to a session high of $67,645, Reuters reported, after having dropped 6 per cent on Tuesday from an earlier record high above $69,000. It was last up 4.5 per cent at $66,160.
Bitcoin has already surged 55 per cent this year so far, as global investors rush in to cash in on the current frenzy, fuelled by rising demand since the introduction of spot exchange traded funds (ETFs) and anticipation surrounding the April halving event.
The first spot Bitcoin ETFs were launched in January this year, and investors are rushing to invest in them. Bitcoin spot ETFs have attracted everyday investors who want to buy digital assets through their brokerage accounts without going to a crypto exchange or to funds that track Bitcoin’s price through futures contracts.
“Bitcoin provides an alternative asset choice for those looking to diversify away from government-controlled assets. This has been a factor supporting gold, as many central banks have bought gold over the last few years to diversify their USD reserves. Bitcoin could face a similar demand if it is increasingly accepted as the ‘digital gold’ of the 21st century. However, there are inherent risks to consider. Presently, Bitcoin’s volatility makes it an unreliable store of value,” Charu Chanana, Head of Forex Strategy, Saxo Bank, said in a note.
The crypto community remains watchful of strategic political endorsements and regulatory landscapes that could further influence Bitcoin’s valuation and acceptance across financial markets, said Vijay Valecha, chief investment officer, Century Financial. “Bitcoin may continue its upward trajectory after a correction due to positive factors such as Bitcoin spot ETF growth and upcoming halving event,” he said. For bitcoin, Valecha sees the pivot point at $66,480, with resistance at $68,700, $71,350, and $74,200, and support at $61,562, $58,819, and $56,127.
Analysts cautioned investors against riding full-on into the current crypto wave. “Bitcoin price action follows a high-beta cycle. When it rises, it rises fast, but when it falls, it also falls much quicker than other risk assets because of a high level of leveraged play in the crypto market. The recent run higher could have been a result of a short-squeeze, as strong ETF flows lead to higher prices and force some shorts to cover. Likewise, leveraged traders are forced to liquidate when the price declines, exacerbating the selloff. Thus, volatility is a key risk,” Chanana said.