Bitcoin reached a new annual peak of $42,000, propelling the collective market capitalization of cryptocurrencies beyond $1.5 trillion for the first time since May 2022.
The rally was driven by factors such as speculation on lower interest rates, heightened anticipation for a spot Bitcoin ETF, and a surge in "panic buying," according to analysts.
Bitcoin, the leading cryptocurrency by market capitalization, surged over the weekend, breaking through a significant resistance level at $38,000 that had been a cap for prices through much of November.
As of late Monday afternoon, BTC was maintaining a position around $42,000, reflecting a 5.8% increase over the past 24 hours.
While smaller tokens like Ether (ETH), BNB, and ADA experienced more modest gains of 2%-3%, XRP traded flat. The CoinDesk Market Index (CMI), tracking the performance of around 200 cryptocurrencies, showed an overall increase of 4.2%.
Bitcoin's ascent propelled the total cryptocurrency market value beyond $1.5 trillion, marking the first time since May 2022, when Terra's collapse ushered in the crypto winter, as indicated by TradingView data.
The surge in Bitcoin's value is primarily driven by the anticipation of a spot Bitcoin exchange-traded fund (ETF) approval in the U.S., widely expected in early January by market observers.
Matrixport, a crypto investment services provider, highlighted the increased levels of the bitcoin perpetual futures premium compared to the spot price. This suggests that traders are entering the Bitcoin market due to the fear of missing out (FOMO) on the rally. The report noted a significant rise in the perpetual futures premium, indicating panic buying as traders close out shorts or increase leveraged long positions.
Investors continue to pour money into crypto funds, with CoinShares reporting another $172 million in net inflows last week, extending the inflow streak to 10 weeks and reaching a total of $1.7 billion.
The macroeconomic landscape also contributes to Bitcoin's price surge, with dovish statements from some Federal Reserve officials, a weakening dollar, and robust domestic data supporting the market. There is an increasing belief among market participants that the Federal Reserve will cut interest rates next year, with an 86% probability of a lower Fed funds rate by May, according to the CME FedWatch Tool.
However, analysts caution about potential short-term headwinds. Some express concern about a lack of follow-through from spot markets despite a decrease in selling pressure in the futures markets. Possible reasons include short-term investors waiting for confirmation before entering long positions or smaller market participants shifting towards higher returns on altcoins.
Another factor prompting caution is that approximately 85% of Bitcoin addresses are currently in profit, raising the possibility of profit-taking in the near future. Despite these considerations, analysts highlight Bitcoin's constructive outlook, citing reduced overhangs, upcoming catalysts (such as spot ETFs and halving), strong holder commitment, a favorable macroeconomic environment, and institutional engagement still largely on the sidelines. Bitcoin has demonstrated exceptional performance, gaining over 150% year-to-date and ranking among the world's best-performing assets on a risk-adjusted basis, according to Galaxy's Thorn. $BTC $ETH
