This article originally appeared on Business Insider.
Bitcoin is in a prolonged rebound to levels last seen when interest rates were near zero and pixelated artwork was regularly selling for millions.
On Monday, bitcoin spiked by more than 5% to breach $66,000 for the first time in nearly three years. It’s within reach of its all-time high of $69,000. Ether, solana, dogecoin, and other tokens are also staging rallies. In February, the value of the cryptocurrency market returned to $2 trillion for the first time since April 2022.
This retesting of highs comes against the headwinds of interest rates potentially remaining higher for longer. Markets have pushed back their rate-cut forecasts as inflation persists and the economy shows little sign of weakening.
The last time around, the rally was driven by low-interest rates that encouraged speculative behavior. When the Federal Reserve started hiking rates to curtail high inflation, the momentum ran out, and Bitcoin plunged to $16,000 less than a year after hitting records.
Now cryptocurrencies are climbing with rates still elevated and without a clear path lower.
What gives?
“Even though Fed rate-cut expectations have been pushed back, the threat of rate hikes is off the table for now,” Blue Chip Daily’s chief technical strategist, Larry Tentarelli, told Business Insider, adding, “So bitcoin has been rallying.”
There’s also a supply-demand imbalance that appears to be outweighing policy concerns.
A slate of bitcoin-ETF approvals has fueled demand and retail interest, while markets are bracing for the bitcoin halving event that will lower the reward for miners and cut the volume issued daily in half.
Halving happens once about every four years, with occurrences in 2020, 2016, and 2012. In the 12 months after the previous three halvings, bitcoin climbed by 8,069%, 284%, and 559%. The event puts pressure on supply as it slows the rate at which new bitcoins enter the market, and this year’s halving will come at a time when demand is sharply rising.
Tentarelli and other market pros have pointed to the emergence of bitcoin ETFs as a “tremendous” driver of crypto demand, as the products allow more investors to gain exposure without buying tokens outright.
CoinShares data released Monday indicates that last week digital investment products saw the second-biggest weekly inflows on record, at $1.84 billion. Ninety-four percent of those inflows moved into bitcoin products. Trading volumes in the investment products hit a record of more than $30 billion in the same stretch.
ETFs from the likes of Wall Street titans like BlackRock and Fidelity invest directly in bitcoin and are snapping up more and more of the available supply.
A report from CoinDesk in February, the month after the ETF approvals, said the 11 funds owned 192,000 bitcoins. That figure is separate from the 420,000 owned by Grayscale, which converted its bitcoin trust into an ETF, and from the nearly 200,000 owned by MicroStrategy.
Standard Chartered has predicted that ETF inflows could help push bitcoin’s price to $200,000. Fundstrat’s Tom Lee holds an even more bullish prediction, saying the crypto could reach $500,000.
“There’s a finite supply and now we have a potentially huge increase in demand” with spot bitcoin ETF approval, Lee said in a recent interview, “so I think in five years something around half a million would be potentially achievable.”