Mar 15, 2024 Currencies

Strong performance for crypto currencies

Introduction of Bitcoin ETFs has given the segment a boost

Bitcoin and Ethereum have been exciting investors again recently. Bitcoin (BTC), arguably the most widely known cryptocurrency, has hit a record high and is now trading above the $73,000 mark in U.S. dollars on March 12, 2024. Ethereum (ETH) is still some way off its November 2021 record high of around $4,870 in U.S. dollars, but has broken through the key $4,000 mark, though it has since dropped slightly below.[1]

Comparing the performance of the two major cryptocurrencies since the beginning of the year, however, Ethereum emerges as the narrow winner: The ETH/BTC exchange rate has risen slightly to around 0.056. This means that the negative trend for Ethereum, which had seen ETH significantly underperform Bitcoin since September 2022, has been reversed, at least for now. Nevertheless, the rise in the price of Bitcoin and Ethereum since the beginning of 2023 is quite impressive at around 340% and 245% respectively (see chart).[1]

Significant outperformance of Bitcoin versus Ethereum

* indexed as of 12/30/22=0
Sources: Bloomberg Finance L.P, DWS Investment GmbH as of 3/12/24

What has boosted bitcoin and the crypto sector in general are the ten bitcoin ETFs that have been approved in the U.S. since the beginning of the year. Investor sentiment on the segment has catapulted upwards. BlackRock's bitcoin exchange-traded fund (ETF) alone soared to the $10 billion mark faster than any other U.S. ETF in history, according to the Financial Times.[2] Morningstar puts the fund’s current value at $14.2 billion on March 12, 2024.[3]

But the new ETFs are not the only current crypto fuel. Investors are bullish, too, about the so-called "halving" in April 2024. As part of this halving process the number of newly minted bitcoins reduces by half every four years. Investors hope that this will lead to sustained price rises as previous halving events have in most cases been positive for prices.[1] They have contributed historically to an increase in trading volume, market volatility and, above all, new investments in the crypto sector. However, the generally high volatility of the bitcoin price means that many investors have often been caught on the "wrong side."

Given the emergence of Bitcoin ETFs, more clarity in crypto regulation and increasing acceptance by governments and businesses, this year's halving could even attract significantly more attention than past ones. The upward trend until now, however, may already have anticipated the euphoria. It is therefore also entirely possible in our view that prices will move downwards again after the halving.

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1. Bloomberg Finance L.P. as of 3/13/24

2. Bitcoin rally pushes BlackRock ETF over $10bn in record time, as of 3/10/24

3. See as of 3/12/24

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