Bitcoin’s recent high—peaking at over $64,000 in mid May—was hard to miss. Today, everyone is asking if this is the start of a new long-term bull market or a flash-in-the-pan rally. There are a host of reasons behind this recent performance— ETF inflows, the upcoming halving event, continuing geopolitical conflicts and more. Comprehension of these drivers is key for investors looking to position themselves for success in today’s market.

Analyzing the Bullish Factors

ETF Inflows and Investor Confidence

In fact, this year has seen the largest inflows for Bitcoin ETFs ever. On April 21, they caught $381.3 million of inflow — their highest single-day inflow since early January. That shows an exceptionally bullish rebound in investor sentiment in the face of the bear market melee. This was a huge inflow week, led mostly by a $116.1 million injection into the ARK 21Shares Bitcoin ETF (ARKB). This underscores a dramatic change in investor sentiment against crypto assets. In just three days, the entire market cap of crypto jumped an astonishing $800 billion. It now sits at roughly $2.84 trillion, driven almost exclusively by Bitcoin’s explosion. Bitcoin’s market price was over $88,500. This increase reasserted its place over the market valuation expectation as it sought to formulate a clear and consistent trading range.

The Halving Event

We’re now four halving cycles deep into Bitcoin’s monetary experiment, with the most recent halving occurring on April 20, 2024—lowering the block reward to 3.125 BTC. This unique occurrence only occurs about once every four years. It slows the pace of new bitcoins being mined, creating more scarcity and potentially increasing the price. This halving in particular is special. It’s occurring at the same time as never-before-seen levels of institutional engagement, including the introduction of classic financial products like ETFs. The stable increase of weekly active wallets since the post-halving period is a clear indicator of the increased usage and adoption of Bitcoin as money. As of May 2024, about 19.7 million bitcoins have been mined. Only around 1.3 million bitcoins are left to be released via mining rewards.

Geopolitical Tensions

As a proven safe-haven asset during times of geopolitical uncertainty, market participants often view Bitcoin like gold. As war clouds continue to gather around the globe, investors are likely to flock to Bitcoin as a hedge against economic and now political uncertainty. Increased demand for Bitcoin as a safe haven asset in response to current geopolitical tensions can further boost demand and price. Bitcoin’s price tends to be extremely volatile during these periods. That doesn’t mean it can’t go on wild rides as situations change. Bitcoin’s decentralized nature is what makes it so concerning. For one, it could be used to evade economic sanctions or wage economic warfare, which would raise the stakes on geopolitical strategies and hurt U.S. relationships internationally, raising the regulatory burden.

Examining the Bearish Arguments

Historical Patterns

After each historic halving event, Bitcoin’s price had experienced a similar pattern. This pattern draws out a bull cycle between 8 and 12 months long. It quickly turns into a bear market for 13 months, then springs into a long recovery of about 22 to 23 months, before the market starts a new bull run again. If this pattern continues, the current boom could be followed by a collapse, or reordering of priorities.

Technical Analysis

From a technical analysis standpoint, Bitcoin will have to break above important resistance levels in order for a bull run to be viable. Should Bitcoin manage to keep rising above the 50-day and 100-day EMAs, it may have a catalyst to pick up bullish momentum. Not doing so might be a first sign of strengthening to the downside in the very current uptrend. This is important for investors to keep an eye on.

Regulatory and Macroeconomic Factors

Regulatory uncertainty and macroeconomic factors cannot be discounted either. Heightened regulatory scrutiny or a downturn in macroeconomic conditions might test investor euphoric expectations and hurt Bitcoin’s valuation in the process. For instance, when interest rates go up, investors may be less incentivized to invest in Bitcoin.

Expert Opinions and Market Outlook

Experts hold varied opinions on Bitcoin's future. Some believe that the current factors point to a sustained bull run, citing increased institutional adoption and growing mainstream acceptance. Still, others are more circumspect, noting the historical track record and possible regulatory stiff winds at the tail.

The recent surge in Bitcoin's price is supported by several bullish factors. It’s important to stay grounded and be conscious of the most important bearish arguments. If the general market can manage to retake the $2.61 trillion resistance zone, it will likely ignite a strong bull run. If continued, this momentum could propel the overall market cap to as high as $3.3tr—$3.5tr by Q2 2025!

Actionable Advice for Investors

Risk Management

Given how unpredictable cryptocurrency markets can be, risk management should be a top priority. All investors should have a diverse portfolio and never invest more than they can afford to lose. By placing stop-loss orders, you are limiting your potential loss.

Staying Informed

It’s imperative to remain educated about evolving market conditions, shifting regulatory landscapes, and broader macroeconomic trends. Therefore, investors should always keep abreast by following these reputable news sources and talking with your financial advisors to make the right decisions.

Considering Layer 2 Solutions

Solutions such as Optimism and Polygon provide amazing solutions to scalability challenges within the blockchain, decreasing fees and congestion which can improve Bitcoin’s price. The long-awaited approval of crypto ETFs in the US has further strengthened the investment case for Bitcoin. While this institutional development is great for crypto at large, there’s a caveat in that…

Looking back at Bitcoin’s performance over the past May is a bit of a mixed bag. There are many reasons to be hopeful, we need to be optimistic but cautious and think about the dangers ahead. By understanding the factors driving Bitcoin's price and implementing sound risk management strategies, investors can navigate the market more effectively.