Bitcoin today on 16 December has surged to a new all-time high, surpassing $106,000. This remarkable milestone marks a significant moment in the cryptocurrency's history, driven by a combination of factors that have reignited investor interest and confidence.

It is important to note that, perhaps unlike previous rally cycles, this surge is not just a fleeting spike but a culmination of several underlying factors that have been building up over time. 

Naturally, investors, whether retail or institutional, are now more optimistic than ever about the potential of Bitcoin. This optimism is reflected in the price, which has climbed steadily over the past few months, breaking previous resistance levels and setting new records.

While institutional interest has always been a letdown in the past, this time, approval of spot Bitcoin ETFs earlier this year was a probable game-changer. For the first time many people in the US especially, institutional investors could buy and hold Bitcoin directly through regulated investment vehicles. This has opened the floodgates for massive inflows from financial giants like BlackRock and Fidelity, who have recognised Bitcoin as a legitimate and potentially lucrative asset class. These institutional investments have provided a strong upward pressure on Bitcoin's price, driving it to new heights.

In addition to institutional interest, the regulatory environment has played a crucial role in Bitcoin's ascent. The incoming Trump administration's pro-crypto stance, whether or not it proves to cement in reality, is priced in. Trump's proposal to create a national Bitcoin reserve a la El Salvador Bitcoin Treasury has been particularly influential. This move signals a shift towards mainstream acceptance and legitimisation of Bitcoin at the highest levels of government.

Furthermore, the appointment of crypto-friendly officials in key regulatory positions has created a more supportive environment for Bitcoin and other cryptocurrencies. This has alleviated some of the regulatory uncertainties that have previously pressed on the market nerve lines, boosting investor confidence.

At the same time, global economic factors have also contributed to Bitcoin's rise. Despite the threat of war in Europe, central banks around the world, including the biggest economies, US Federal Reserve and China, are expected to cut interest rates in response to various economic pressures.

This increase in global liquidity makes Bitcoin an attractive asset. Investors are looking for alternatives to traditional investments, and Bitcoin, with its limited supply and decentralised nature, offers a compelling option. As a result, more capital is flowing into Bitcoin, driving up its price.

Institutional power

The influx of institutional money, coupled with the approval of spot Bitcoin ETFs, has made it easier for institutional investors to allocate capital to Bitcoin. Companies like BlackRock and Fidelity have led the way, recognising the potential of Bitcoin as a hedge against inflation and a store of value. These investments have not only increased the demand for Bitcoin but also added a layer of credibility to the cryptocurrency, attracting even more investors who perhaps feel more confident in Bitcoin’s legitimacy.

By treating Bitcoin as a serious asset class, they have encouraged other investors to follow suit, making it more appealing to a broader range of investors.

Their substantial inflows into Bitcoin ETFs likely set the stage for this rally. For instance, BlackRock's iShares IBIT Bitcoin ETF has attracted over $17 billion in inflows, demonstrating strong institutional interest. MicroStrategy's recent acquisition of 21,550 BTC for $2.1 billion has strengthened its position as a major Bitcoin holder, sending a strong signal to the market and fostering increased trust and optimism among other institutional investors.

Traditional financial institutions like sovereign wealth funds and pension managers have also begun incorporating Bitcoin into their portfolios, marking a departure from their previous stance on cryptocurrency investments. This shift reflects growing acceptance of Bitcoin as a legitimate financial asset.

US regulations bending the knee?

The pro-crypto stance of the incoming Trump administration has had a profound, if unfounded, impact on Bitcoin's price. Trump's proposal to create a national Bitcoin reserve is a bold move that underscores the administration's commitment to integrating Bitcoin into the national financial system. This proposal, combined with the appointment of crypto-friendly officials, has created a more favorable regulatory environment for Bitcoin.

As we mentioned earlier, the approval of spot Bitcoin ETFs by the US Securities and Exchange Commission (SEC) has been a landmark moment, legitimising Bitcoin as a financial asset and opening the floodgates for institutional capital.

The market has responded positively to these developments, with investors feeling more confident about the future of Bitcoin under a supportive regulatory framework.

Power to the holders

While the entry of institutional players like MicroStrategy has brought credibility and stability to the market, reassuring smaller investors and creating a positive feedback loop, one doesn’t ignore the collective pressure of individual Bitcoin holders and users.

Economic conditions worldwide and central banks’ impending cuts on rates have combined to make Bitcoin an attractive alternative investment to the retail investor. As traditional assets become less appealing, investors are turning to Bitcoin as a store of value and a hedge against economic uncertainties. The increased demand for Bitcoin, driven by these economic factors, has been a key driver of its recent price surge.

Retail investors, against this backdrop, driven by the ease of access and the growing popularity of new crypto wallets that do away with complicated user interfaces, have taken to simplified processes of buying and holding Bitcoin. The return of retail investors has been notable, with demand surpassing levels seen in previous cycles. This surge in retail interest has been reflected in the number of new Bitcoin addresses created and increased Google searches for "Bitcoin".

As such, you can always count on Bitcoin to grow stronger and stronger in what might be called foundational numbers – numbers of users, number of holders, number of speculators, number of adopters – while supply grows scarcer and scarcer. These will once more be the slow burn driving force of the next Bitcoin ATH cycle.