Bitcoin breaks through $70,000 again, how far can the rally go?

Bitcoin breaks through $70,000 again, how far can the rally go?Bitcoin has hit the $70,000 mark again after four months. On Tuesday, October 29, following the opening of the US stock market, Bitcoin broke through the key resistance level of $70,000 for the first time since June 7, surging by 4

Bitcoin breaks through $70,000 again, how far can the rally go?

Bitcoin has hit the $70,000 mark again after four months. On Tuesday, October 29, following the opening of the US stock market, Bitcoin broke through the key resistance level of $70,000 for the first time since June 7, surging by 4.22% during the day. It reached an intraday high of $71,521 and experienced trading volume exceeding $47 billion in a single day, almost double the volume on Monday. Year-to-date, the price of Bitcoin has soared by 68%.

The bullish Bitcoin momentum has also fueled a broader rally in other cryptocurrencies and related stocks. As of Tuesday afternoon, Ethereum was up 2.26%, Dogecoin by 3.53%, Litecoin by 2.76%. On Monday, Canaan Inc., the "first cryptocurrency mining stock," closed up 9.15%, Riot Blockchain, a mining company, rose 5.39%, cryptocurrency trading platform Coinbase increased by 5.39%, and Microstrategy, the largest corporate holder of Bitcoin, gained 8.96%.

Analysts generally believe that this latest Bitcoin surge is closely linked to the evolving US election landscape. During his campaign, Trump had declared that he would make Bitcoin a strategic reserve asset for the United States if he returned to the White House, and would also make America "the global cryptocurrency capital." Harris, too, chose a path distinct from Biden, pledging her support for cryptocurrencies. Options traders have significantly increased their bets on Bitcoin, projecting a breakout beyond $80,000, a historic high, by the end of November. However, from a fundamental perspective, how far can this latest "Bitcoin frenzy" go?

Bitcoin trading reaches new highs

In March of this year, Bitcoin hit an all-time high of $73,798, followed by a downward trend, fluctuating between $50,000 and $70,000. In August, it experienced a sharp correction, plummeting by 10.25% for the month. However, entering September, stimulated by central bank rate cuts and liquidity injections, Bitcoin reversed its decline, registering a 7.35% monthly gain, marking its best September performance ever. In the past month, Bitcoin has trended upwards amidst volatility, experiencing a 12.30% monthly gain.

During this period, a massive influx of capital has been pouring into Bitcoin. According to data from asset management firm CoinShares, Bitcoin ETFs witnessed inflows of $920 million in the week ending October 25, accumulating a year-to-date inflow of $25.4 billion, almost triple the inflow witnessed in 2021. Even last weekend, news of the US regulatory investigation into Tether, the world's largest stablecoin issuer, did not deter the cryptocurrency's bullish momentum. On Monday, the total cryptocurrency market capitalization surged by 2.28%, reaching a size of $2.33 trillion.

Over the past two weeks, asset management giant BlackRock has added over 30,000 Bitcoin (worth approximately $2.3 billion) to its holdings, bringing its total Bitcoin holdings to over 400,000. According to US Securities and Exchange Commission filings, tech giant Microsoft is also considering entering the Bitcoin space.

Short-term and long-term tailwinds fueling the rally

Why has Bitcoin experienced a frenzy in recent days, with institutions and investors aggressively buying? In the short term, "Trump trades" and loose monetary policy are two key "catalysts."

James Butterfill, head of research at CoinShares, stated in a report that the current price and flow of Bitcoin are significantly influenced by US politics, and the recent surge in inflows could be linked to shifts in the Republican election prospects. The global turn towards loose monetary policies by major central banks, enhancing risk appetite, has also acted as a favorable wind for cryptocurrencies. Moreover, the market generally expects potential inflationary risks in the United States after the election, objectively boosting this Bitcoin rally.

Cao Xiao, deputy dean of the School of Finance at Shanghai University of Finance and Economics, explained to the 21st Century Business Herald that as Bitcoin has gradually become a mainstream asset, it has been perceived as an inflation-fighting asset, similar to gold, earning the moniker "digital gold." With the recent monetary policies of the US Federal Reserve strengthening inflationary expectations, "digital gold" has risen in price alongside gold.

In the long term, Bitcoin's fundamentals also exhibit strong demand support. Cao Xiao argues that, first, Bitcoin's prospects for use in the financial industry are already clear, and its application in financing, lending, and other financial models has become the most vibrant area of financial innovation. Financial models built around Bitcoin have become the core of digital finance, a fundamental driver of Bitcoin's continuous price growth.

Second, given the clear practical use cases of Bitcoin, with the launch of Bitcoin futures and spot ETFs, Bitcoin has become a mainstream asset for asset management institutions. Institutional allocation and ownership of Bitcoin amplify demand for it.

Meanwhile, Bitcoin's performance is also linked to the enthusiasm surrounding large tech stocks. Wang Yingbo, an assistant researcher at the Information Research Institute of the Shanghai Academy of Social Sciences, told the 21st Century Business Herald that the US election landscape and the easing interest rate cycle are short-term factors behind Bitcoin's surge. Long-term, Bitcoin belongs to the category of digital assets, and its significant rise is underpinned by the acceleration of the digitalization of the overall industry, with resources rapidly transitioning from carbon-based to silicon-based. This is a long-term factor contributing to Bitcoin's growth.

Therefore, it's noteworthy that over the past year, not only have digital currencies like Bitcoin shown impressive gains, but the seven tech giants of the US digital economy have also experienced significant price increases, even exceeding the gains of Bitcoin.

Can it keep rising?

Looking ahead, the cryptocurrency market is dominated by bullish sentiment. Traders have stepped up their bets on call options. Data reveals a concentration of call options expiring on November 8 with strike prices clustered around $75,000, while call options expiring on November 29 (open interest contracts) feature strike prices centered around $80,000.

David Lawant, head of research at cryptocurrency brokerage FalconX, stated: "Our belief is that the market consensus is that Bitcoin is likely to perform well regardless of the outcome of the US election. Our team's analysis shows a clear upward bias in options activity surrounding the upcoming election."

Several institutions have offered even more optimistic target prices. Investment bank Bernstein predicts a Bitcoin price of up to $200,000 by the end of 2025. Sathvik Vishwanath, co-founder and CEO of Unocoin, believes that Bitcoin exhibits cyclical behavior, historically witnessing robust growth towards the end of the year. He anticipates a similar pattern in 2024. Historical trends show that Bitcoin has averaged a 26% gain in October, a 36% rise in November, and an 11% gain in December, supporting the optimistic expectation of a potential Bitcoin breakout above $100,000.

Wang Yingbo believes that Bitcoin, at its core, is a speculative asset rather than a transactional currency, making its short-term price susceptible to various disruptive factors, making it difficult to predict. However, in the long run, barring the emergence of superior digital currency technologies, Bitcoin is expected to maintain its upward trajectory.

Cao Xiao points out that multiple factors will bolster long-term Bitcoin price growth. Additionally, with the Bitcoin market shifting towards institutional dominance, price fluctuation will gradually converge, making a short-term surge to $80,000 less likely.

Bitcoin's future is not without potential obstacles

Nicholas Sciberras, senior analyst at CollectiveShift, points out that if Bitcoin continues to face government crackdowns and its energy consumption faces further regulatory pressure, it could put pressure on Bitcoin's long-term upward trajectory. Another long-term concern is how to ensure the security of the cryptocurrency when block rewards diminish.

"As an emerging investment, Bitcoin still carries considerable market risk, and the possibility of significant volatility remains. It's crucial to be aware of investment risks," Cao Xiao reminds.