Bitcoin hit a record high above $69,000 on Tuesday, marking a remarkable comeback for the volatile cryptocurrency after its value plummeted amid a market slump in 2022.
Bitcoin's price has risen more than 300 percent since November 2022, a revival some predicted when the price dipped below $20,000 that year. Its previous record low was $68,790 in November 2021 as crypto markets boomed and amateur investors poured savings into experimental digital currencies.
The cryptocurrency was “declared dead for the 150th time,” said Corey Clipston, chief executive of Swan, a financial services firm focused on bitcoin. “And Bitcoin continues to do what Bitcoin does, which is succeed when people actually take the time to learn about it.”
Bitcoin's recent rise has been driven by investor interest in a new financial product linked to the digital currency. In January, US regulators authorized a group of crypto companies and traditional financial institutions to offer exchange-traded funds, or ETFs, which track the price of bitcoin. The fund offers a simple way to invest in the crypto markets without directly owning the virtual currency.
As of last week, investors have poured more than $7 billion into investment products, fueling bitcoin's rapid rise, according to Bloomberg Intelligence.
The price of ether, the second most valuable digital currency after bitcoin, has also risen more than 50 percent this year to around $3,800. Its rise was partly driven by interest in the prospect that regulators might approve an ETF linked to Ether.
But cryptocurrencies remain volatile. Minutes after reaching the record, Bitcoin's price dropped to around $67,500.
Despite the euphoria, the crypto industry is still navigating legal consequences after the 2022 crash. Sam Bankman-Fried, the disgraced founder of the collapsed FTX crypto exchange, is set to be sentenced to prison later this month. The Securities and Exchange Commission has sued several major crypto companies, including US exchange Coinbase, arguing that the companies were issuing unregistered securities.
Courts have begun weighing some of those cases, and the outcome will determine whether crypto companies can continue to operate in the United States. Many doubt that digital currencies offer much real-world use.
“There is no intrinsic value,” said John Reed Stark, a former SEC official and outspoken critic of the crypto industry. “There is no proven record of adoption or reliance.”
Bitcoin was invented after the 2008 financial crisis by a mysterious developer using the pseudonym Satoshi Nakamoto. Digital currency was originally envisioned as a decentralized alternative to the traditional financial system, a way for people to exchange funds without relying on banks or other intermediaries.
But as Bitcoin rose in value, it became a vehicle for financial speculation. The price of the currency rose rapidly, before quickly plummeting – creating new millionaires one day and wiping out their savings the next.
In the early part of the epidemic, a surge in day trading by amateur investors helped make cryptocurrencies a hot commodity. The industry promoted itself in splashy press spreads and Super Bowl commercials, boosting bitcoin's price.
Within a year, the bubble burst. A series of corporate implosions culminated in November 2022 with the collapse of Mr Bankman-Fried's exchange, FTX. Investors lost billions of dollars as the price of bitcoin fell to around $16,000.
The industry's fortunes began to improve in August when a federal appeals court cleared the way for companies to offer ETFs tied to bitcoin. An ETF is basically a basket of assets divided into stocks. Investors buy shares in a basket rather than directly owning the assets.
In the crypto world, that means investors can gain exposure to Bitcoin without mastering the technical details of a digital currency wallet, or handing over large sums of money to fly-by-night companies with checkered legal histories. Financial giants like BlackRock and Fidelity offer bitcoin investment products, providing stability to a volatile industry.
For years, crypto advocates have predicted that the approval of Bitcoin ETFs would bring billions of dollars in new investment to the industry, though some analysts have expressed skepticism about those predictions.
Preliminary data suggest the impact has been significant. In recent months, the approval of investment vehicles combined with other factors has boosted the price of Bitcoin.
“Every time you have a period of despair, crypto and bitcoin seem like they're not going to come back,” said John Todaro, an analyst at Needham who tracks the crypto sector. “But we've seen it continue to go forward time and time again.”
Later this year, the amount of new bitcoin in circulation will decrease because “”half.” The event, which is slated to be Bitcoin’s underlying token, will halve the amount of Bitcoin people receive when they run software to verify crypto transactions (commonly known as “mining”).
The prospect of a scarce bitcoin supply has helped propel its price this year, some analysts have argued. With the halving expected in the spring, Bitcoin supporters predict prices will continue to rise.
“This is the beginning of this bull market.” said Nathan McCauley, CEO of crypto firm Anchorage Digital, said prices were skyrocketing this month. “The best is yet to come.”
