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Bitcoin Soars to Record High Fueled by ETFs, Falling Rate Expectations

Bitcoin, the world's largest cryptocurrency, reached a new all-time high of $69,202 on Tuesday, surpassing its previous record set in November 2021. This surge comes amidst a wave of investor interest driven by the approval of spot bitcoin exchange-traded funds (ETFs) in the US and the possibility of declining global interest rates.

The recent market enthusiasm marks a stark contrast to the previous year, when the crypto market faced a prolonged slump, dubbed the "crypto winter," characterized by major bankruptcies and scandals. Since October, however, Bitcoin has skyrocketed nearly 160%, with February alone witnessing a 44% jump.

Several factors are contributing to the current rally.

The Securities and Exchange Commission's green light for 11 spot bitcoin ETFs in late January has opened up the asset class to a wider pool of investors, previously hesitant to enter the complex and volatile crypto space. Additionally, the prospect of the Federal Reserve lowering US interest rates has enticed investors seeking higher-yielding or more volatile assets, including Bitcoin and cryptocurrencies in general. This trend is evident in the increased investment in crypto alongside mega-cap technology stocks and investment-grade corporate bonds.

Analysts also attribute the rise to the upcoming "halving event" in April, a process that occurs every four years, where the rate at which new bitcoins are created is cut in half. This, coupled with the limited overall supply of Bitcoin (capped at 21 million, with 19 million already mined), creates a scenario of potential scarcity, further fueling investor interest.

Despite the recent surge, Bitcoin remains a controversial asset for many. Critics highlight its extreme volatility and perceived lack of real-world applications, viewing it primarily as a speculative investment.

However, alongside the influx of funds through ETFs and the anticipation of a constrained supply and potentially reduced interest rates, some corporations are now adding Bitcoin to their holdings. Software giant MicroStrategy, a long-time Bitcoin advocate, recently purchased an additional 3,000 Bitcoins, while social media platform Reddit also disclosed owning small amounts of Bitcoin and Ethereum in a regulatory filing.

Whether Bitcoin can sustain its momentum and usher in a prolonged revival of the cryptocurrency market remains to be seen. However, the current confluence of factors suggests a significant shift in investor sentiment and potentially a new chapter for the digital asset.

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