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Bitcoin Rally and “Short Memories” Rekindle Everything in Cryptocurrencies
(Bloomberg) — Bitcoin’s rally near a record high is awakening animal spirits, not just in the cryptocurrency market itself, but in the broader financial world that left the digital asset sector for dead last year.
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The change in sentiment can be seen in the improving outlook for deal flow, highlighted by Robinhood Markets Inc.’s purchase of cryptocurrency exchange Bitstamp Ltd. on Thursday, in a pickup in venture capital investment to what Some analysts expect there to be record numbers of initial public offerings from industry-related companies.
In the cryptocurrency market itself, there has been a notable return of hallmarks of previous bull markets: celebrities are once again promoting cryptocurrencies, and new tokens are being created at a rate of thousands per day, with around 330,000 coins debuting in the Ethereum ecosystem in April and May only, according to crypto data tracker Dune.
Overall, it shows that there’s nothing like rising prices to make investors forget about the financial carnage of the past – including the failures of cryptocurrency exchange FTX and lender Celsius – in a market that’s notorious especially for its scandals and boom-and-bust cycles.
“Investors often have short memories,” said Campbell Harvey, a finance professor at Duke University. “When market sentiment is high, they give more weight to good news and tend to downplay bad news that may have happened in the past.”
Bitcoin has risen this week as much as 2.5% of the all-time high of $73,798 reached in mid-March, amid growing demand for recently authorized exchange-traded funds. Even though the digital currency is up nearly 70% already this year, the gains pale in comparison to the returns of highly speculative memecoins like Dogwifhat and Bonk.
This year’s boom reached its peak when the Securities and Exchange Commission approved ETFs that invest directly in Bitcoin in January. Then, in May, the agency took a step toward approving similar spot Ether ETFs, a move that many in the industry saw as giving in to growing political pressure to legitimize cryptocurrencies and create new laws that would make it easier the operation of digital asset companies.
US Bitcoin ETFs attracted unprecedented inflows for the 18th consecutive day through Thursday. According to data compiled by Bloomberg, net subscriptions for the group of nearly a dozen products amounted to $15.6 billion, bringing total assets to $62.3 billion.
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Large financial companies are increasingly entering the world of cryptocurrencies. Earlier this week, Mastercard resumed allowing users of the world’s largest cryptocurrency exchange, Binance, to make purchases on its network. Binance settled with the Justice Department last year over anti-money laundering and other violations and is still fighting SEC charges.
“Over the past few months, we have been reviewing the improved controls and processes that Binance has put in place,” a Mastercard spokesperson said in a statement. “It is based on these efforts that we have decided to allow Binance-related purchases on our network. This status depends on ongoing reviews.”
Crypto MNA is also heating up. This week, Bitcoin miner Core Scientific Inc. rejected an unsolicited $1 billion takeover offer from artificial intelligence startup CoreWeave Inc., just days after announcing a partnership. On Thursday, Robinhood said it will acquire Bitstamp for $200 million to expand its cryptocurrency business in Europe.
“A U.S. regulatory framework creates a fast-paced innovation environment that accelerates an institution’s buy-over-build decision-making process and drives a robust M&A environment,” Elliot Chun, partner at consultant MNA Architect Partners, said in a recent note . “I will be bold and say that in May 2024, our industry officially transitioned from #TheGreatPurge and entered #TheGreatSurge.”
According to Crypto Fund Research, crypto funds are thriving and more such funds were launched in the first quarter than at any time since the second quarter of 2021.
Talk of new cryptocurrency IPOs is picking up again, with Kraken said to be in talks for a pre-IPO funding round, while eyeing an IPO as early as 2025, Bloomberg reported on Thursday. If cryptocurrency prices continue to rise, the next 18 months could see the largest wave of cryptocurrency-related IPOs ever recorded, according to Renaissance Capital, a pre-IPO researcher.
“I think if these companies can target explosive revenue growth or robust earnings, that will attract investor interest,” said Matthew Kennedy, senior market researcher at Renaissance. “I suspect that the financial data is there and that investors will take it with a grain of salt: they know it’s a cyclical business, many companies are like that.”
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