Bitcoin Saw 27% October Surge as Traders 'Panic Bought' Amid Bitcoin ETF Enthusiasm. Is $40,000 Next?

The boredom ended in October as cryptocurrency prices zoomed higher, with the biggest of them all, bitcoin (BTC), posting the strongest monthly rally since January as investors were abuzz with optimism that bitcoin ETFs will soon get approved in the U.S.

BTC gained more than 27%, springing to a 17-month high of $35,000 after hovering around the $27,000 level during the first half of October. It has recently resided just above $34,000 ahead of the Federal Reserve's interest rate decision on Wednesday, with market participants largely expecting policymakers to leave rates unchanged.

The rally spread across the broader crypto market, a bullish sign, The CoinDesk Market Index (CMI), which tracks a broad basket of tokens, advanced 22% in October. The market capitalization of all cryptocurrencies jumped nearly 19% to $1.255 trillion, according to TradingView data, the biggest increase in crypto wealth since the 33% jump in January.

ETFs would be a big deal for bitcoin because they're far easier for the average investor to buy than the cryptocurrency itself or existing bitcoin investment products, like the Grayscale Bitcoin Trust (GBTC) with $21 billion assets under management. The U.S. Securities and Exchange Commission rejected GBTC's conversion into one, but courts have eviscerated that decision, boosting the odds the SEC will have to approve that shift – and likely also bless ETF applications from the likes of BlackRock, the world's largest asset manager.

Despite the fact that it was a broad crypto rally in October, not all sectors benefited equally.

The CoinDesk DeFi Index (DCF), which encompasses tokens related to the decentralized finance sector such as decentralized exchanges, lending and staking protocols, gained only 7% in October. Key DeFi tokens such as curve (CRV), maker (MKR), uniswap (UNI) and compound (COMP) declined 3% to 7%.

Ethereum's ether (ETH) posted a modest gain of 7%. Its valuation sank to a level versus BTC that was also seen in June 2022, which preceded ETH outperformance.

Meanwhile, the CoinDesk Computing Sector (CPU), an index that tracks protocols focused on building and supporting Web3 infrastructure and distributed computing, jumped almost 32% in October.

Among alternative cryptocurrencies, solana (SOL) was a notable outperformer with over 70% monthly return amid increasing network activity and subsiding concerns about FTX dumping tokens in a fire-sale.

Read more: Sam Bankman-Fried Started Buying Solana's SOL at 20 Cents Using 'Alameda Profits,' He Says at His Trial

Investors are excited about the potential for bitcoin ETFs in the U.S.

"A spot bitcoin ETF could bring in as much as $50 billion to $100 billion in inflows over the next five years" and "could have an outsize impact on the price of bitcoin," Ryan Rasmussen, analyst at asset manager Bitwise, said Tuesday in an interview with CoinDesk TV.

He said he expects the SEC to green light ETF applications as soon as December, before the holidays. Bitwise is one of the firms that wants to list one.

Crypto investment services firm Matrixport said that elevated funding rates on the BTC derivatives market suggest that many traders "panic bought" on the way up in a fear of missing out of the rally.

On top of the ETF hype, sector specific momentum, short liquidations and macroeconomic headwinds also contributed to the price increase, crypto analytics firm CoinMetrics said in a report Tuesday.

"This market movement suggests renewed confidence and indicates a potential shift in the dynamics around digital asset markets," CoinMetrics analyst Tanay Ved said.

Highlighting a shifting sentiment, investment legend Stanley Druckenmiller said at a Robin Hood fireside chat Monday with hedge fund manager Paul Tudor Jones that he "likes" bitcoin and gold as an investment and store of value asset. He said he owns gold because it's a "5,000-year-old brand," but young people prefer to own BTC because it's "easier to do stuff with."

"I don't own any bitcoin, but to be frank, I should," he added.

After its blockbuster month, bitcoin hasn't run out of steam and could run further, analysts suggested.

"The October breakout to a fresh yearly high has opened the door for this next major upside extension, targeting a measured move objective in the $40,000 area over the coming weeks," Joel Kruger, market strategist at LMAX Group, said in an email.

Matrixport analysts noted that the firm's Bitcoin Greed & Fear Index sits at 97%, signaling "exuberant" sentiment. Still, they argued that BTC is likely to "squeeze higher and could target $40,000 as the next significant resistance level."