Why is Bitcoin still increasing strongly?

Despite the news of rising inflation, Bitcoin still jumped to $52,000 per unit as demand exceeded supply, especially in the US.

After a sharp drop due to US CPI news, Bitcoin quickly climbed back to the $50,000 range and gradually accumulated its market value until it surpassed $52,000 per unit on the evening of February 14. Despite facing profit-taking pressure, which led to fluctuations, the world's largest cryptocurrency is still trading around $52,000 to date.

Bitcoin has gained about 14% over the past week. It has gained more than 23% since the start of the year. The current rally has pushed Bitcoin's market capitalization back above $1 trillion after 26 months. The cryptocurrency's fear and greed index reached 79 out of 100, a record high more than two years after the cryptocurrency hit an all-time high in November 2021.

Analysts say strong inflows into newly listed U.S. Bitcoin ETFs are the main driver. According to data provider CryptoQuant, about $9.5 billion in new money has entered the market through ETFs since they began trading on Jan. 11. Over the past two weeks, more than 71% of new money invested in Bitcoin has come from spot ETFs, excluding GBTC. Investors are starting to realize that demand is outstripping supply.

Over the past few months, hopes of a “soft landing” scenario for the U.S. economy and the launch of spot Bitcoin ETFs have helped boost investor sentiment. ETFs are seen as a game-changer in the cryptocurrency market, which is known to have great appeal to retail traders, as these products allow investors to gain exposure to Bitcoin without having to hold it directly.

Adding to the increased demand, the market is also benefiting from the upcoming “halving” event scheduled for April. This is an event that occurs every four years, reducing the reward for miners in half. Bitcoin has rallied during the previous three halvings, the most recent in 2020.

“If the rate of Bitcoin issuance slows while demand remains stable or increases, the impact on price will be significant,” said Duncan Ash, an expert at asset security company Coincover.

On February 12 alone, ETFs bought 10 times the amount of the cryptocurrency that miners can create in a single day. The upcoming “halving” will further reduce supply, and investors expect Bitcoin prices to continue to rise in the coming months.

In addition to these two reasons, the market also recorded a new price-raising factor. According to this unit, the current price increase is mainly driven by strong demand from US investors for the world's largest digital asset.

The Coinbase Premium, which measures the price difference between Bitcoin on US-based Coinbase and Binance, rose to 0.12 on February 15, its highest level since May 2023, according to data from analytics firm CryptoQuant. "This could indicate strong buying by US investors," said a CryptoQuant expert.

Markus Thielen, founder of 10x Research, also noted that the majority of Bitcoin’s price increase occurred during U.S. trading hours. Over the past 30 days, the cryptocurrency has increased 17%, of which 11% occurred during U.S. trading hours, while increases during Asian and European trading hours accounted for only 3%.

Xiao Gu (according to CoinDesk , Reuters , CNBC )

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