Weekly Insights 5: Bitcoin price reaches record high
This week, the price of bitcoin went up by a significant amount, breaking a new price record on Tuesday. It first set a new record in euros and then, two days later, in dollars. Bitcoin is back in demand so it seems. American spot bitcoin ETF's saw record volumes and capital inflows. Furthermore, the World Economic Forum released a video about bitcoin mining in Congo, explaining how it protects nature reserves while simultaneously contributing to chocolate production.
Bitcoin price reaches record high
After more than two years, the price of bitcoin has reached a new record height, surpassing 63,000 euros. This breaks the previous record set on November 14, 2021. A major driver behind this price increase is the increased capital inflow into American investment products, which recorded record volumes and inflows this week.
Increasing capital flows into bitcoin ETFs
Recently in the bitcoinmarket, there has been a lot of attention to the capital inflows into ETFs and their volume. The spot bitcoin ETFs have broken the record for capital inflow previously held by the famous gold ETF ($GLD) in 2004.
The announcement of net capital flows occurs a day after the trading day. This means that today's trading activities lead to actual capital movements within the fund tomorrow. This delay is a fundamental characteristic of how ETFs operate and affects both the transparency of capital flows and the overall market dynamics.
The distinction between activities on the secondary market and primary market processes, such as the creation and redemption of ETF shares, directly influences the daily amount of capital flowing in and out of the funds. This is essential for maintaining a close relationship between the price of ETF shares and the value of the underlying assets.
Essentially, a capital inflow means the ETF issuer sells more shares than it buys, leading to the creation of new shares and the purchase of the underlying asset, such as bitcoin. The trading volume reflects market activity but does not directly provide insight into capital flows.
Bitcoin mining in Congo
Last Saturday, the World Economic Forum published a positively toned video about bitcoin mining in Virunga, Congo. It explains how bitcoin miners, located in Africa's oldest nature reserve, contribute to chocolate production by using the residual energy from hydroelectric power plants. This initiative generates about $150,000 a month worth of bitcoin, enough to pay the salaries of factory workers and invest in infrastructure.
The park began mining bitcoin in 2020 as a new source of income after tourism revenues fell due to the pandemic.
MicroStrategy
MicroStrategy has announced plans to issue $600 million in bonds. The proceeds will be used to purchase even more bitcoin, adding to the already impressive amount of 193,000 bitcoins the company holds. This issuance is aimed at qualified institutional buyers, and is thus not aimed to the retail market. It is not the first time MicroStrategy issues bonds to raise money to buy more bitcoin. Previously the software company did a round of $450 and $600 million worth of bonds. MicroStrategy currently has almost $5 billion of unrealized profit on its bitcoin bet.