After a summer of outflows, capital is flooding back into spot Bitcoin (BTC -3.13%) exchange-traded funds (ETFs), and, right on cue, Bitcoin's price has been climbing, reaching nearly $80,000 on Aug. 27. The iShares Bitcoin Trust ETF (IBIT -2.73%) has captured most of the inflows. It saw a $693 million burst in the first week of August, and then a whopping $503 million on Aug. 20 alone, making for the best run of inflows since mid-April -- and as of Aug. 27, it doesn't look to be anywhere near over.
Buying Bitcoin now is a favorable proposition for anyone willing to hold it for at least five years. But with the challenges of the last few months still in force, it's worth examining why this rally started and what it means.
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ETF buyers are back, and they might be motivated by both greed and fear
The biggest driver of renewed interest in the Bitcoin ETFs came on Aug. 19, when the U.S. Treasury said it would at least double its buybacks of long-dated government bonds, starting Sept. 9.
That made Treasury bond yields fall, pushing investors toward riskier assets as the return on supposedly low-risk bonds decreased. Crypto, especially Bitcoin, has traditionally benefited from those circumstances.
Furthermore, the financial world received that more active approach to managing the bond market quite poorly, which probably drove some investors out of U.S. Treasuries and toward scarce store-of-value assets like gold and Bitcoin. Gold is up by 5% since the announcement, whereas Bitcoin is up by 22%. Bitcoin is treated as both a risk asset and a store of value, a rare combination.
CRYPTO: BTC
Key Data Points
Another driver is that investors who had shorted Bitcoin were forced by its resurgence to buy it back and cover, a short squeeze. That phenomenon is likely concluded.
The final driver is that on Aug. 19, President Trump held a White House summit with crypto industry leaders, who advocated for the Clarity Act, which could regulate the crypto market's structure. Top regulators also attended and suggested new rules would follow even if the bill fails this year. But nothing new and binding has come from Congress or regulators yet.
These forces won't be in confluence forever
One month of flows doesn't change the investment thesis for buying Bitcoin. These factors could help the coin's winning streak continue, but they won't stay this strong forever, and they don't need to.
NASDAQ: IBIT
Key Data Points
Think about the market's reaction to the Treasury news. No matter the momentary sentiment, Bitcoin can't be easily mined, and there can only ever be 21 million Bitcoin. It will remain scarce, and no government can print more of it.
Those are the reasons to buy Bitcoin, and they're mostly the same as they were years ago.
