Guess who’s back? Bitcoin (BTC) has surged into the mid-$40,000 range this week for the first time since around March 2022, having appreciated in value approximately 25% over the past month. So why is BTC on fire?

Number one appears to be market sentiment that SEC approval of one or more pending spot bitcoin exchange traded fund (ETF) applications has become inevitable (see Practical Law’s Crypto ETF Tracker) due to the ruling in Grayscale v. SEC, in which the DC Circuit Court held the SEC’s rejection of Grayscale’s spot BTC ETF application to be arbitrary and capricious (see Legal Update, Grayscale Investments, LLC v. SEC: Court Finds Denial of Spot Bitcoin ETF Arbitrary and Capricious). Approval of a spot BTC ETF would essentially allow registered brokers to sell bitcoin to retail investors, providing greater investor protection and dramatically expanding the market.

Another driver of the BTC renaissance is the expectation that interest rates have peaked. The BTC market tends to move inversely to the bond market, and as investors continue to look for yield over inflation, they may be moving away from treasuries and into store-of-value commodities such as gold and bitcoin, which in theory move in tandem (though we have seen them diverge). There is also the notion that the deluge of US regulatory enforcement activity has cleared out some of the bad actors in the space, providing additional confidence for the sector (for example, see Legal Update, Federal Agencies Settle Charges Against Crypto Exchange Binance and Practice Note, OFAC Economic Sanctions: Cryptocurrency and Blockchain).

And, of course, with crypto, perception is everything. Once the market begins to look at tweets and graphs, stochastics take over, which has happened over the past week or so, further driving momentum. And don’t forget, approximately 19 million (over 90%) of all bitcoins have already been mined. Only 21 million were originally “authorized” by founder Satoshi Nakamoto, and the recent bitcoin “halving,” in which BTC miners now receive half the amount of BTC for each “block” of BTC mined, was a reminder that the BTC universe is finite. Though estimates of when the entire bitcoin supply will be mined vary widely from mid-century to roughly 2140.

For further insight into cryptocurrency and digital assets, see Practical Law’s Crypto Toolkit and Cryptocurrency and Virtual Currency Regulatory Tracker.