Why crypto is surging back to all-time highs and shrugging off high interest rates

• Bitcoin is barreling back toward its all-time high of $69,000. 
• The last time the crypto reached current levels, interest rates were near zero. 
• Now, a supply-demand imbalance is eclipsing the outlook of higher for longer interest rates. 

Bitcoin is in the midst of a prolonged rebound back to levels last seen when interest rates were near zero and pixelated artwork was regularly selling for millions. 

On Monday, bitcoin spiked more than 5% to breach $66,000 for the first time in nearly three years. It's within reach of its all-time high of $69,000, and ether, Solana, dogecoin, and other tokens are also staging rallies. In February, the value of the entire cryptocurrency market returned to $2 trillion for the first time since April 2022.

This re-testing of highs comes against the headwinds of interest rates potentially remaining higher for longer. Markets have pushed back their rate-cut forecasts with inflation persisting and the economy showing little sign of weakening.

It stands in contrast to the last time around, after the pandemic, when the rally to new highs was driven by low interest rates that encouraged speculative behavior. When the Fed started hiking rates to curtail high inflation, the momentum ran out, and bitcoin plunged to $16,000 less than a year after making records. 

Now, cryptocurrencies are climbing with rates still elevated and without a clear path lower.

What gives? 

"Even though Fed rate cut expectations have been pushed back, the threat of rate hikes is off the table for now...so bitcoin has been rallying," Blue Chip Daily's chief technical strategist, Larry Tentarelli, told Business Insider.

There's also a supply-demand imbalance that appears to be outweighing policy concerns.

A slate of bitcoin-ETF approvals has fueled demand and retail interest like never before, while markets are also bracing for the bitcoin halving event that will lower the reward for miners and cut the volume issued on a daily basis in half.

Halving happens about every four years, with the last occurrences in 2020, 2016, and 2012. In the 12 months after the previous three halvings, bitcoin climbed 8,069%, 284%, and 559%, respectively. The event puts pressure on supply as it slows the rate at which new bitcoins enter the market, and this year's halving will come at a time when demand is sharply rising. 

Tentarelli and other market pros have pointed to the emergence of bitcoin ETFs as a "tremendous" driver for crypto demand, as the products allow more investors to gain exposure without buying tokens outright.

To that point, last week digital investment products saw the second-biggest weekly inflows on record, at $1.84 billion, according to CoinShares data released Monday. Ninety-four percent of those inflows moved into bitcoin products. Trading volumes in the investment products hit a record of more than $30 billion in the same stretch.

ETFs from the likes of Wall Street titans like BlackRock and Fidelity invest directly in bitcoin, and they are snapping up more and more of the available supply.

According to a February report from Coindesk, in the month after the January ETF approvals, the 11 funds owned 192,000 bitcoin. That figure is separate from the 420,000 owned by Grayscale, which converted its bitcoin trust into an ETF, and separate from Microstrategy which owns close to 200,000. 

Standard Chartered has predicted that ETF inflows could help push bitcoin's price to $200,000. Fundstrat's Tom Lee holds an even more bullish prediction, saying the crypto could reach $500,000. 

"There's a finite supply and now we have a potentially huge increase in demand with a spot bitcoin [ETF] approval, so I think in five years something around half a million would be potentially achievable," Lee said in a recent interview.