Bitcoin Prices Shows No Sign of Slowing. Why Crypto Keeps Rallying.

“Both micro and macro factors are currently lining up for Bitcoin,” said Zach Pandl, the managing director of research at digital asset manager Grayscale. “The Fed has turned dovish, Bitcoin’s supply looks very tight ahead of the halving, and investors are looking ahead to the potential of both a spot Bitcoin ETF approval and contentious presidential election next year in the United States.”

Indeed, alongside hopes that a Bitcoin ETF would usher in fresh crypto investment, tokens have also been buoyed by an improving macroeconomic backdrop amid expectations that the Federal Reserve will cut interest rates multiple times next year. The same trend has buoyed the
Dow Jones Industrial Average
and
S&P 500,
but Bitcoin has vastly outperformed the stock market. Lower rates—and falling Treasury yields—tend to benefit riskier bets like Bitcoin the most, since higher returns on cash or risk-free government debt lures investors away from the riskiest plays.

Moreover, after a stretch of gains that has pushed Bitcoin prices above a number of key levels, analysts see strong momentum and an improving technical market backdrop. With prices in their current range, of particular interest is the historical trend for Bitcoin to move rapidly through the zone around $40,000, suggesting that an approach to $50,000 could be in sight if a correction doesn’t come.

“We have repeatedly noted ‘thin air territory’ in the $40,000 to $46,000 range,” said Alex Kuptsikevich, an analyst at broker FxPro. “The market did not linger here in previous times, and we should look for hints of turning points not earlier than the $46,000 to $47,000 area, where there was a reversal in March last year and temporary support in 2021.”

However, perhaps the most important factor squeezing Bitcoin prices higher is the supply and demand dynamic—the only truly fundamental basis on which to analyze the token. Evidence suggests an unwillingness to sell among many holders, a tight supply situation that is likely to be exacerbated next year with the expected Bitcoin “halving,” a programmed monetary policy event that will cut the issuance of the crypto.

“The percentage of Bitcoin’s supply that has remained unmoved for over a year has continued to increase, reaching a record high of 70% in late November,” said Strahinja Savic, head of data and analytics at crypto advisor and capital markets platform FRNT Financial. “That’s why this rally has been characterized as the ‘nothing for sale rally.’ There’s this large chunk of the Bitcoin investor base that is highly reluctant to sell.”

Right now, the biggest tailwind for Bitcoin is momentum, which could kick-start new money flowing into the space at a time of such limited token supply. The recent outperformance of smaller tokens like Dogecoin could be a sign that bullish sentiment is broadening, which would bode well for the spread of FOMO, or fear of missing out, which has driven crypto bull markets in the past.

“The rally has left a lot of interested parties on the sidelines who are likely to become involved later,” said Alex Thorn, head of research at crypto financial services group Galaxy Digital.

Beyond Bitcoin,
Ether
—the second-largest crypto—jumped 2% to $2,250. Smaller tokens or altcoins were similarly buoyant, with
Cardano
climbing 8% and
Polygon
popping 3%. Memecoins were even further into the green, with
Dogecoin
soaring 13% and
Shiba Inu
12% higher.

Write to Jack Denton at [email protected]