You don't need me to tell you that Bitcoin (BTC) has been on a tear. The first and largest cryptocurrency by market cap has risen by more than 6% in just the past 24 hours, after crossing a supposedly psychologically significant threshold of $65,000 according to CoinDesk Indices data. It is now within striking distance of its all-time high of $69,000, which was last seen at the end of 2021 – before bad things happened.
Many people, even industry insiders, were surprised by the price action, given how bleak market sentiment around cryptocurrencies was even just a few months ago. Not even a major exchange like Coinbase expected this to happen, since the surge in trading activity caused (yet another) outage. It is surprising that some people feel hesitant to say that this is the start of another bull run, given that things could be falling as quickly as Bitcoin is rising.
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But there are legitimate differences that actually set this cycle apart from the 2020-2021 hype cycle – where the bear market washes out some of the worst aspects of the industry. Does growing interest in cryptocurrencies need to be accompanied by fraud, crime and troubling behavior? As risky as it is to say, things may be different this time.
First, there's the multi-billion-dollar question: Will Bitcoin ETFs continue to grow and grow? The 10 live funds have seen net inflows of $8 billion to date, which has not only helped re-legitimize cryptocurrencies due to the participation of trustworthy financial institutions including BlackRock, Fidelity, and Bank of America's Merrill Lynch, but has also imposed buying pressure. Great on underlying assets. Commodity, Bitcoin.
ETFs may have changed market dynamics by providing a safer way for people to gain exposure. If anything, these ETFs prove that there is latent demand for Bitcoin from across the market, from retail investors to ultra-high-net-worth individuals who are asking their banks for exposure to cryptocurrencies. For example, BlackRock's Bitcoin ETF is the first fund to reach $10 billion in assets under management so quickly — and some say the next $10 billion could flow even faster.
But TradFi's interest isn't just focused on ETFs. CME Group's cryptocurrency derivatives products, typically seen as a proxy for institutional interests, are seeing record volumes. A similar trend occurred last cycle, as interest in cryptocurrencies sparked increasing interest from more and more sectors. The higher the number of cryptocurrencies, the more people want to play with them.
Interestingly, the current cycle has not attracted the same level of participation from celebrities – at least not yet. This may be a factor in the lack of a figure like Sam Bankman-Fried who wanted to buy the public's trust in FTX by funding celebrity endorsements. The SEC will likely file a lawsuit against Kim Kardashian or the group of personalities who allegedly advertised TRON without disclosing it, which will keep Hollywood on the hook.
Of course all of this could change – Paris Hilton could premiere Bored Ape again any day – but for now the lack of “influencers” is a positive development, given that research shows how bad their investment “advice” is. Likewise, the voices that dominated the last cycle – figures like Alex Machinsky, BitBoy, Changpeng Zhao, Do Kwon, SBF, Su Zhu, etc. – have been largely discredited, and this appears to be the power vacuum that cryptocurrency hopes will remain. Empty. .
This in itself may be wishful thinking, and it's worth thinking about why influencers emerge in the first place. One theory is that cryptocurrencies have influencers because cryptocurrency prices are self-reflective (also known as “number-boosting technology”), and someone tends to emerge to coordinate interest toward one project or another. This is amplified, as Bloomberg notes, by traders' ability to load up on borrowed money, gaining leverage to try to maximize trading profits.
Given the amount of credit already accumulating in cryptocurrency markets (open interest in Bitcoin futures has risen 90% since last fall on platforms like Binance, OKX, and BitMEX, which can be leveraged up to 100 times) and the huge amount of capital flowing into the meme. Coins like DOGE and SHIB, people are clearly looking to gamble big this time as well.
There is hope that the cryptocurrency lending sector will not take a turn as bad as it did last time, given that it ended up being dominated by a group of now-bankrupt “hedge funds” like Alameda Research and Three Arrows Capital, which were supposed to be generating the paid returns for their clients. Now bankrupt lending platforms like Celsius, BlockFi and Genesis.
Token giant Securitize, for example, recently launched an “Earn” program that offers returns through over-collateralized loans and tokenized funds of financial giants KKR and Hamilton Lane. For now, while Securitize is still assessing demand for the product, Securitize itself will pay for it as a “sustainable” user return from its balance sheet, Reed Simon, head of credit at Securitize, told CoinDesk in an interview.
This in itself is an interesting move, indicating how important lending programs are as one of the few ways to put digital assets to productive use. “It's a business we want to get into,” Simon said, noting that it's “unclear” how much the original company's brand will resonate with the cryptocurrency space. “I don't necessarily think of Securitize and Bitcoin together,” he said.
There is no guarantee that the same mistakes will not be made again (or that Bitcoin will continue to rise if it regains its all-time highs). It is worth noting that the recent rally came alongside significant advances in the S&P 500 and Nasdaq and renewed growth in the US technology sector, surprising many onlookers who thought raising interest rates would keep capital away from high-risk sectors.
Cryptocurrencies are likely doomed to Sisyphean cycles of rising rates of illicit use, fraud, speculation, and greed-incited endorsements every time prices rise, simply because of the nature of how these hype cycles emerge. But, for now, with the worst aspects of the industry gone, and many wanting to do things differently (read: legitimately), it's worth hoping things don't take a turn for the worse.
Must everything that rises fall? Is this time really different?
