Bitcoin is a market where prices experience dramatic fluctuations. One day, investors may believe that the value of the cryptocurrency will collapse, and the next day, it may skyrocket. Not surprisingly, this situation is reminiscent of recent events. After a prolonged period of value decline, bitcoin once again approached the threshold of 80,000$. The question that arises is what triggered this growth spurt. The reason for this is multifactorial, with several different phenomena combining to influence the change in the value of the cryptocurrency.

The most important reason for this growth spurt was that institutional investors returned to the bitcoin market. The increase in institutional investment in bitcoin was so significant that it was enough to influence the tides of the market on a large scale. Thus, during the last seven trading days, about 2.5 billion dollars flowed into bitcoin exchange-traded funds (ETF). This is the largest inflow of funds into such funds since October. Moreover, according to Reuters, the reason for this interest in bitcoin was the “debasement trade” – a scenario in which investors buy gold or bitcoin to hedge against the loss of confidence in the US dollar. Therefore, the weakening of the dollar and the fear about its prospects led to record-high demand for cryptocurrency and a significant increase in its price.

It is also noteworthy that the weakening of the dollar was triggered by a combination of factors, including the prospect of a rate hike in the United States and the federal budget. Thus, the purchases of long-term treasury securities by the United States Treasury stimulated the rally of the prices of gold and bitcoin. Despite the relatively small size of these purchases, they fueled the perception of the federal government’s willingness to intervene in the market to influence market liquidity, given the precarious state of the federal budget. Finally, another factor influencing the changing perceptions of bitcoin was related to the influence of federal policies on market conditions. Thus, the emergence of expectations of more favorable regulations for cryptocurrencies fueled the desire of investors to purchase this asset, which in turn had a positive effect on its price.

Another factor influencing the price of bitcoin was the changing psychology of market participants. The peculiar feature of this market is that it is dominated by speculators who are guided mostly by rumors rather than fundamental analysis. Thus, changes in the attitude of investors towards a particular asset lead to dramatic swings in its price. In the case of bitcoin, the situation is similar to other assets in that the change in attitude towards them occurs abruptly and leads to rapid growth or decline in prices. In this case, the rapid growth was due to the fact that short sellers had to buy back bitcoins to cover short positions. Consequently, the price explosion was also due to a short squeeze. According to the Financial Times, this factor also influenced the rapid growth of bitcoin in August.

It should be borne in mind that although the recent growth in the price of bitcoin is significant, this does not mean that it will continue to grow. Although many factors have come together to influence the situation, there are also phenomena that could spoil the situation for bitcoin. The most important of these factors is the further tightening of monetary policy by the Federal Reserve. After the recent statements of Fed member Kevin Warsh about the threat of persistently high inflation, investors are once again talking about the prospect of an aggressive rise in interest rates in September. This high-interest rate policy reduces the appeal of speculative assets such as bitcoin. Against this background, the continued growth of the price of bitcoin will be difficult to sustain. Thus, the next few weeks will be crucial for the future of bitcoin, during which it will become clear whether this asset will continue to grow or whether the next correction is coming.

In conclusion, several factors interact to influence the value of bitcoin. As can be seen from the analysis, at the moment, the situation in the market is conducive to a rise in prices. In particular, institutional investors are returning to the market, fueling speculation about the prospects of bitcoin. At the same time, the weakening of the dollar and changing federal policies also have a positive impact on the price of this cryptocurrency. On the other hand, the volatility of this asset and the threat of a rate hike by the Fed will limit the potential for growth. The situation in which bitcoin finds itself is paradoxical and is one of the reasons for the popularity of this asset. While it continues to enjoy prestige among investors, its future prospects remain questionable.