Bitcoin hit a record high of more than $69,000 on March 5, capping a remarkable comeback for the volatile cryptocurrency after its value plunged in 2022 amid a market meltdown.
Bitcoin’s price has risen more than 300% since November 2022, a resurgence that few predicted when the price dropped below $20,000 that year. Its previous record was just under $68,790 in November 2021, as crypto markets boomed and amateur investors poured savings into experimental digital coins.
The cryptocurrency was “pronounced dead for the 150th time,” said Cory Klippsten, CEO of Swan, a financial services firm focused on bitcoin. “And bitcoin continues to do what bitcoin does, which is win people over as they take the time to actually learn about it.”
Bitcoin’s recent surge has been driven by investor enthusiasm for a new financial product tied to the digital coin. In January, U.S. regulators authorized a group of crypto companies and traditional finance firms to offer exchange-traded funds, or ETFs, which track bitcoin’s price. The funds provide a simple way for people to invest in the crypto markets without directly owning the cryptocurrency.
As of late Februrary, investors had poured more than $7 billion into the investment products, propelling 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% this year, reaching about $3,800. Its increase has been driven partly by enthusiasm over the prospect that regulators may also approve an ETF tied to ether.
Volatility Continues
But cryptocurrencies remain volatile. Within a few minutes of hitting the record, bitcoin’s price dropped to about $67,500.
And despite the euphoria, the crypto industry is still navigating the legal aftermath of the 2022 crash. Sam Bankman-Fried, the disgraced founder of the collapsed FTX crypto exchange, is set to be sentenced to prison at the end of March. The Securities and Exchange Commission has sued several prominent crypto firms, including the U.S. exchange Coinbase, arguing that the companies offer unregistered securities.
Courts have begun weighing in on some of those lawsuits, and the outcome could determine whether crypto companies can continue operating in the United States. Many skeptics remain unconvinced that digital currencies offer much real-world utility.
“There’s no inherent value,” said John Reed Stark, a former SEC official and an outspoken critic of the crypto industry. “There’s no proven track record of adoption or reliance.”
A Little History
Bitcoin was invented in the aftermath of the 2008 financial crisis by a mysterious developer using the pseudonym Satoshi Nakamoto. The digital coin 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’s value increased, it became a vehicle for financial speculation. The currency’s price rose rapidly before falling just as quickly — minting new millionaires one day and erasing their savings the next.
In the early part of the pandemic, a surge in day trading by amateur investors helped turn cryptocurrencies into a hot commodity. The industry promoted itself in splashy magazine spreads and Super Bowl commercials, sending bitcoin’s price soaring.
Within a year, the bubble burst. A series of corporate implosions culminated in November 2022 with the collapse of FTX. Investors lost billions of dollars as bitcoin’s price plummeted to around $16,000.
Bitcoin ETFs
The industry’s fortunes started improving in August, when a federal appeals court paved the way for companies to offer ETFs tied to bitcoin. An ETF is essentially a basket of assets broken up into shares. Investors buy shares in the basket, rather than owning the assets directly.
In the crypto world, that means investors can gain exposure to bitcoin without mastering the technical details of a digital currency wallet or entrusting large amounts of money to fly-by-night firms with checkered legal histories. Financial giants like BlackRock and Fidelity are offering the bitcoin investment products, providing a measure of stability to a volatile industry.
For years, crypto advocates predicted that the approval of bitcoin ETFs would bring billions of dollars in new investment to the industry, though some analysts expressed skepticism about those projections.
Early data suggests the impact has been significant. Over recent months, the approval of the investment vehicles has combined with other factors to send bitcoin’s price up.
“During every period when you’re in despair, it looks like crypto and bitcoin will never come back,” said John Todaro, an analyst at Needham who tracks the crypto industry. “But we’ve seen time and time again that it continues to go forward.”
The Halving
Later this year, the amount of new bitcoin that goes into circulation will decrease because of an event known as “the halving.” The event, which was programmed into bitcoin’s underlying code, will reduce by half the amount of bitcoin that people receive when they run software to validate crypto transactions (a process commonly known as “mining”).
The prospect of scarcer bitcoin supply has helped drive up its price this year, some analysts have argued. And with the halving expected to take place in the spring, bitcoin advocates are predicting that prices will continue to surge.
“This is just the beginning of this bull market,” said Nathan McCauley, CEO of crypto company Anchorage Digital, as prices were skyrocketing this month. “The best is yet to come.”
c.2024 The New York Times Company. This article originally appeared in The New York Times.
