It's another hot start to what looks likely to be another big week in the cryptocurrency world. Leading cryptos are once again surging, with Bitcoin (BTC -2.07%), Ethereum (ETH -0.26%), and Dogecoin (DOGE -3.92%) all making big moves.
As of 12:15 p.m. ET Monday, these three mega-cap cryptos had surged 3.8%, 2.9%, and 0.9%, respectively, over the prior 24 hours. Importantly, Bitcoin made a new all-time high above $72,500. In the wake of the Securities and Exchange Commission's recent approval of several spot Bitcoin exchange-traded funds (ETFs), continued capital inflows into those funds are creating a clear supply-and-demand imbalance for this top crypto. This catalyst, as well as anticipation of the upcoming halving event in April -- which will cut the rewards for Bitcoin mining in half and thus reduce the volume of new Bitcoin being created -- is exacerbating expectations that Bitcoin's recent momentum can continue.
Most investors who follow crypto can understand the rather simple dynamics driving Bitcoin higher. But for more complex reasons, Bitcoin's recent surge could also mean continued upside for Ethereum and Dogecoin, two projects that are very different from Bitcoin in key ways.
Why is Bitcoin's move a sectorwide phenomenon?
There's certainly something to be said about Bitcoin's status as the key crypto benchmark other digital assets are valued against. The Bitcoin/U.S. dollar exchange rate is very important in the crypto world, with Bitcoin largely being viewed as the currency of choice for this sector. That should mean that as Bitcoin becomes more valuable, other tokens relative to Bitcoin should become relatively cheaper, at least compared to Bitcoin.
However, during previous rallies, this hasn't been the case. And while capital is clearly flowing in one direction (toward Bitcoin via these exchange-traded funds), it's also true that retail investors and even some large money managers are finding ways to accumulate other cryptocurrencies ahead of what many expect could be a continued rally in risk assets.
For Ethereum specifically, the possibility that a spot Ethereum ETF could be approved as soon as May is a key catalyst many investors are watching. The Ethereum network is also undertaking a number of upgrades, including the upcoming Dencun upgrade, which is expected to unfold within two days. As investors may remember, "the Merge" upgrade created significant hype for this network as Ethereum shifted to a proof-of-stake protocol from the more energy-intensive proof-of-work protocol. The Dencun upgrade will look to build on that progress, with a focus on reducing Layer-2 transaction costs and making the network more efficient.
For meme tokens like Dogecoin, it has been "party on," mostly due to the risk-on atmosphere that has been building in pockets of the market. Cryptocurrencies like Dogecoin that rely more on the value of their community and backers have seen outsized interest as a result of surging asset prices across the board in this sector. For now, the thesis supporting Dogecoin's rise may be as simple as "price goes up," but it's also true that leveraged bets to the upside via long perpetual contracts are playing into Dogecoin's surge in recent days.
How long will this party continue?
Until we see some sort of slowdown in the flow of capital into Bitcoin, it appears increasingly unlikely we'll see the kind of material pullback many crypto bears have been predicting. Spot Bitcoin ETFs have siphoned an incredible amount of capital from institutional investors in record time, and the level of demand has surprised even some of the most ardent crypto bulls. If Ethereum and other digital assets can see similar waves of investment, all bets are off with respect to how long this period of price appreciation may last.
Upgrades and other utility-generating use cases for a wide range of cryptocurrencies (and select meme tokens can be included in this group) could drive the fundamental investing thesis behind these digital assets as well. While I'm less enthusiastic about Dogecoin's long-term prospects relative to Bitcoin and Ethereum, its recent move is worth noting. In the crypto sector, speculative interest can manifest itself in significant near-term volatility, as we've seen play out in the past. Accordingly, these are three tokens every investor interested in the crypto space will want to watch moving forward.
