Bitcoin is hitting $ 40,000 for the first time, but a withdrawal is likely imminent

NEW YORK (Reuters) – Bitcoin reached $ 40,000 for the first time on Thursday, as it continues a rally that has seen the digital currency climb more than 700% from March 12 closing low.

PICTURE OF FILE: Bitcoin virtual currency representation is seen in front of a stock graph in this photo taken on November 19, 2020. REUTERS / Dado Ruvic / Illustration / File Photo

Growing demand from institutional, corporate, and more recently, investors has powered this year’s bitcoin surge, fueled by the prospect of quick returns in a world of ultra-low yields and negative interest rates.

The world’s most popular cryptocurrency climbed as high as $ 40,402.46 and was up 6.1% last year at $ 39,100. It crossed $ 30,000 for the first time on Jan. 2 and $ 20,000 on Dec. 16.

Smaller ethereum coins, the second largest in market capitalization, and XRP, the fourth largest, gained 1.8% at $ 1,231 and 31% at 32 US cents, respectively. Both currencies often move alongside bitcoin.

Some investors viewed bitcoin as a hedge against inflation in the midst of a massive fiscal stimulus aimed at combating the economic devastation caused by COVID-19.

Although market participants warned that a correction could be in the cards after a hot rally.

“While further growth is inevitable, investors should not expect this to move in a straight line,” said Gavin Smith, chief executive officer of the cryptocurrency consortium, Panxora Group.

“The reality is that bitcoin is far from a magic money tree, and is not free of downward price swings. In fact, we can expect dips as sharp as 25% at times as investors withdraw profits from time to time, ”he added.

The Bitcoins surge occurred as the market cap for the entire cryptocurrency sector reached $ 1 trillion on Thursday, according to data trackers CoinMarketCap and CoinGecko.

Glassnode, which provides insight on blockchain data, noted that retail interest in bitcoin has increased in recent weeks, with the number of bitcoin addresses or wallets holding a “non-zero amount” of virtual currency in reaching an all-time high of over 33 million.

The information provider also said while interest in bitcoin and news coverage has grown, it is far from being in bubble territory. The number of new daily bitcoins has still not reached 2017 levels, says Glassnode, suggesting that the currency is experiencing strong organic growth when adopted, but not the kind of “bubble-like viral growth.”

Reporting by Gertrude Chavez-Dreyfuss and Chuck Mikolajczak; Editing by Chris Reese and Aurora Ellis