NEW YORK (AP) — Bitcoin has reached an all-time high less than two years after the collapse of cryptocurrency exchange FTX severely damaged faith in digital currencies and sent prices plummeting.
The world's largest cryptocurrency jumped 4% this week and briefly topped $68,800 on Tuesday, according to CoinMarketCap. This is slightly higher than the previous record set by Bitcoin in November 2021.
The volatile asset quickly fell somewhat, reaching just under $62,000 as of 3pm EST, but the price is still more than 175% higher than it was one year ago.
Gains in recent months have been fueled by anticipation and the eventual US approval of Bitcoin exchange-traded funds earlier this year, which provided access to a much broader class of investors. The price of Bitcoin has risen about 60% since the approval of Bitcoin ETFs in January, which are an easy way to invest in assets or a group of assets – such as gold, junk bonds or bitcoins – without having to buy the assets themselves directly.
Also driving prices is what is known as the Bitcoin “halving” which is expected to take place in April. Halving reduces the rate of extraction and creation of new currencies, thus reducing supply.
Here's what you need to know.
EARLY SUCCESS OF BITCOIN SPOT ETFS
In January, the US Securities and Exchange Commission approved the first bitcoin spot funds from asset managers including BlackRock, Invesco, and Fidelity. The newly approved ETFs contain actual bitcoin — unlike previous bitcoin-linked ETFs that were invested in contracts related to future price bets, but not in the cryptocurrency itself.
While regulators cited ongoing risks and remained hesitant about the January decision, the green light represents a major win for the cryptocurrency industry.
Institutional demand for bitcoin shows “no signs of slowing,” Mike Colonis and Dylan Scales of HC Wainwright wrote on Tuesday — adding that bitcoin’s popularity “is likely to accelerate in the coming months as more wealth management platforms for ETFs become available ( Bitcoin) traded clients.”
Using data from cryptocurrency platform BitMEX, Colonnese and Scales estimated that the 10 Bitcoin ETFs averaged $302 million in daily net flows in February. In the past week alone, these spot ETFs recorded record inflows of $1.7 billion – bringing total net inflows to $7.5 billion since their launch on January 11.
Half in sight
The increased demand is also in line with Bitcoin's next halving event, which is expected to be at the end of April.
The Bitcoin halving, which occurs every four years, is when the Bitcoin mining reward is cut in half. This reduces the speed at which new coins are created, making the supply more scarce.
While analysts say limited supply at a time of high demand could push Bitcoin's price higher over time, others point to significant volatility generated before and after the halving events — and the potential for significant declines.
“Past history may not be a reliable guide to predict how the upcoming Bitcoin halving will impact its value,” noted Rajeev Bhamra, senior vice president of digital finance at Moody's Investors Service. “Various external factors, changes in market sentiment, and regulatory developments can affect the trajectory of Bitcoin’s price.”
A history of fluctuations
Bitcoin has a history of dramatic fluctuations in value – which can come suddenly and occur over the weekend or overnight in trading that continues at all times, every day.
Bitcoin rose from just over $5,000 at the start of the pandemic to its peak in November 2021 at nearly $69,000, in a period marked by high demand for technology products. Prices collapsed during an aggressive series of interest rate hikes by the Federal Reserve aimed at cooling inflation, slowing money flows and making risky investments riskier. Then came the FTX collapse in 2022, which significantly undermined confidence in cryptocurrencies.
At the beginning of last year, it was possible to get one bitcoin for less than $17,000. However, investors began returning in large numbers as inflation began to ease. Indeed, the collapse of prominent tech-focused banks in 2023 led more investors to turn to cryptocurrencies as they bailed out positions in Silicon Valley startups and other risky bets.
Despite the recent excitement around Bitcoin, experts still maintain that cryptocurrencies are a risky bet with large, unpredictable fluctuations in value. In short, investors can lose their money as quickly as they make it.
“It is necessary to be cautious and recognize that the path ahead for the digital finance ecosystem, especially cryptocurrency markets, is expected to pass through a period characterized by volatility,” Bamra noted, noting the importance of “cautious optimism.”
