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Bitcoin has surged to its highest price in nearly 20 months on optimism the toughest regulatory punishments for the industry have passed and that US regulators will shortly approve stock market cryptocurrency funds.
The cryptocurrency soared to more than $42,000 on Monday, up 8.2 per cent on the previous day, as traders piled into an asset whose value has climbed by more than a fifth in the last month.
Investors are turning to riskier assets as they raise their bets that the US Federal Reserve is preparing to cut interest rates next year, despite the central bank’s insistence that such speculation is premature.
Traders said the momentum to buy digital tokens was also driven by growing interest among larger institutions after the closure of two of the most high-profile criminal cases that had hung over the market for the last year.
Last month the US successfully prosecuted Sam Bankman-Fried, former chief executive of FTX, and Binance, the world’s largest crypto exchange. Bankman-Fried was convicted of fraud and Binance paid $4.3bn in penalties after pleading guilty to criminal charges related to money laundering and financial sanctions breaches.
But despite many traders’ fears, US authorities did not shut down Binance, the world’s largest exchange. Binance continues to face a separate lawsuit from the Securities and Exchange Commission for allegedly violating securities laws.
“The message from many institutional investors was that they needed two things before looking at the space again: closure on FTX and clarity around Binance,” said Henri Arslanian, co-founder of Nine Blocks Management, a crypto hedge fund manager based in Dubai.
Ethereum, the second most actively traded cryptocurrency, also rose 8.3 per cent to $2,260 on Monday, its highest level since May last year.
Investors are also hopeful that the SEC will approve an exchange traded fund for bitcoin in coming weeks.
Until now, the SEC has refused for a decade to approve spot bitcoin ETFs, stock market funds that invest directly in the cryptocurrency.
Some of Wall Street’s largest investors, including BlackRock and Franklin Templeton, have joined companies such as VanEck and WisdomTree in submitting filings with the SEC.
The market has long viewed a bitcoin spot ETF as a way to wrest control of digital assets from scandal-ridden crypto groups in favour of mainstream businesses such as BlackRock.
“ETF speculation is going to continue to drive behaviour in the crypto market this week as investors buy into the narrative of the transformative impact opening the market to institutional investors will have on the ecosystem,” said Simon Peters, market analyst at eToro.
While the SEC has embarked on a year-long crackdown on crypto — including enforcement actions against groups such as US-listed exchange Coinbase — pressure is growing on the regulator to approve a bitcoin spot ETF.
Crypto asset manager Grayscale scored a watershed legal victory this year when a federal appeals court ruled the SEC was wrong to reject its application to convert its flagship Grayscale Bitcoin Trust into an ETF.
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