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Bitcoin soared to a record high of over $69,000 (€63,000) this week before experiencing a slight decline, astonishing investors with an impressive recovery following the cryptocurrency’s plunge in 2022 amidst market turmoil. Bitcoin’s price has skyrocketed by over 300% compared to November 2022 when it had dropped below $20,000.
The cryptocurrency’s market capitalization also reached a record high of nearly $1.35 trillion. The total combined value of the crypto market currently sits at around $2.5 trillion, its highest level since November 2021 and just 10% below its all-time high of $2.8 trillion. Bitcoin’s resurgence is largely credited to investor enthusiasm surrounding a new financial product linked to the digital coin: bitcoin ETFs. Anticipation for these ETFs, or exchange-traded funds, fueled months of speculation, culminating in a frenzy of institutional activity following their debut on January 10 this year.
These funds simplify investors’ access to bitcoin without directly owning the virtual currency. According to Bloomberg Intelligence, investors have poured over $7 billion into these investment products, propelling bitcoin’s rapid ascent. US financial regulators were long wary of allowing bitcoin ETFs, citing concerns about fraud and manipulation. “[The favorable climate for bitcoin in the US] is not because US regulators want to be more favorable,” said Jonathan Biers, chief investment officer at Farside Investors, a UK-based equity investment fund, to DW. “It’s mostly driven by court victories from the crypto industry, who have beaten the SEC in courts, resulting in a more favorable regulatory climate and more legitimacy, which is attracting more flow from American investors.”
Alongside the crypto rally, gold has also reached record highs, sending mixed messages about traders’ risk appetite across global markets.
Historically regarded as an investor safe haven, gold is often sought in times of geopolitical tensions and when investors are concerned about a potential pullback in global stocks after a rally. The value of gold has steadily risen since October when the war between Israel and Hamas broke out. Stock markets have also hit all-time highs in recent months, leading many to anticipate an impending correction.
The surge in gold contrasts with that of bitcoin, whose utility beyond speculative investment remains a topic of debate. While gold’s rise suggests investors are acting defensively, bitcoin’s surge reflects a hunger for digital assets fueled by speculative fervor and technological innovation.
“The crypto story can be tied in with what is happening in equity markets and broader risk-taking,” said Kyle Rodda, senior market analyst with Capital.com, to Bloomberg. “We’re seeing a resurgence in meme coins that suggests irrational, risk-taking behavior — which is consistent with what is happening in some parts of the equity market.”
Signals from the US Federal Reserve indicating that interest rates are likely to come down this year could also be driving the rally, as investors anticipate lower borrowing costs.
Bitcoin emerged in the aftermath of the 2008 financial crisis as a decentralized alternative to traditional finance. Initially conceived for peer-to-peer transactions, its value surged in the years that followed, inviting speculation and extreme volatility. Amateur day trading during the pandemic exacerbated its rise. However, the bubble eventually burst, marked by corporate collapses like that of the major cryptocurrency exchange FTX in November 2022, which wiped out billions in investor wealth and sent bitcoin’s value plummeting to around $16,000.
“FTX was essentially a fraudulent business,” said Bier, “so of course, it’s a good thing for society that this fraud was exposed and collapsed.”
So what’s next? Bitcoin’s impending “halving” event, programmed into its underlying code, is set to reduce the amount of new bitcoins entering circulation by half.
Bitcoin is produced through a process called “mining,” where powerful computers solve complex mathematical puzzles to verify and record transactions on the blockchain, earning “miners” new bitcoins as a reward. Halving events, which occur approximately every four years, reduce the reward given to miners, slowing down the rate at which new bitcoins are generated.
This scarcity of bitcoin supply has been cited by analysts as a driving force behind its recent price surge. With the halving expected to occur this spring, bitcoin enthusiasts anticipate further price jumps.
However, critics remain skeptical of the digital asset, highlighting concerns about its utility and regulatory challenges in the aftermath of the 2022 crash.
“There’s no inherent value,” John Reed Stark, a former SEC official and an outspoken critic of the crypto industry, told the New York Times. “There’s no proven track record of adoption or reliance.”
