Once more, bitcoin is gaining popularity. For the first time in more than a year and a half, the largest cryptocurrency in the world surged above $41,000 on Monday, marking a 150% increase so far this year.
According to FactSet, volatile bitcoin shot up from just over $5,000 at the beginning of the pandemic to nearly $68,000 in November 2021, a time when demand for technology products was at an all-time high. Following an aggressive round of rate hikes by the Federal Reserve intended to contain inflation, prices returned to earth, followed by the collapse of FTX, one of the largest cryptocurrency companies.
After losing more than 75% of its value, a single bitcoin could be purchased for less than $17,000 at the start of 2023. However, as inflation started to decline, investors started to come back in force. Furthermore, when well-known banks with a concentration on technology failed, more investors fled their investments in high-risk ventures like Silicon Valley start-ups and instead turned to cryptocurrencies.
However, the likelihood that spot bitcoin exchange-traded funds, a pooled investment instrument that can be bought and sold like stocks, will be approved is what is driving this most recent rally.
Proponents of the industry claim that this new approach to investing in bitcoin at spot prices rather than futures may make it simpler for anyone to enter the cryptoverse and reduce some of the well-known risks involved.
According to Kaiko research analyst Riyad Carey, “a lot of optimism related to the potential approval of a spot ETF is the longer-term catalyst (for bitcoin)” on Monday. But he pointed out that a regulatory approval does not guarantee future profits.
Analysts anticipate that the approval of spot bitcoin ETFs will increase the number of cryptocurrency investors, but Carey noted that future volumes could go either way. That might increase or decrease the value of bitcoin.
The current surge in Bitcoin also occurs at a time when cryptocurrencies are going through extreme disruption. The largest cryptocurrency exchange in the world, Binance, was hit with a $4 billion fine by the US government just last month after its founder, Changpeng Zhao, entered a guilty plea to a felony charge.
However, Carey pointed out that Binance is still in business and has a market share. Noting bitcoin’s gains in the two weeks since the settlement was announced, he said that in some ways, the company’s settlement “propelled the market forward more by removing one of the… more ominous overhangs that was a sort of a big question mark.”
Experts continue to maintain that cryptocurrency is a risky bet with wildly unpredictable value fluctuations, despite the recent excitement surrounding bitcoin. To put it briefly, investors may experience a rapid loss of capital.
The public’s trust in the cryptocurrency industry was severely damaged and retail investors lost everything as a result of the collapse of the massive cryptocurrency exchange FTX last year. Former Oanda senior market analyst Edward Moya previously told The Associated Press that institutional capital, such as hedge funds, is driving most of the current cryptocurrency investment.
Carey went on to say that less liquidity can make price swings worse and that the liquidity in cryptocurrency markets has not yet recovered to what it was prior to FTX’s collapse.
“Prices have typically increased over the last few months, but people should always be aware that things can change drastically and quickly,” he stated.
The price of bitcoin was $41,709 as of Monday at 1:30 p.m. Eastern time.
Though not as quickly or as high as bitcoin, the stocks of some other major players in the cryptocurrency space have increased in recent months as well. For instance, Ethereum was trading at $2,223 on Monday afternoon, up 85% from the year’s beginning. Meanwhile, with Monday afternoon prices of about $231 and $32, respectively, Binance Coin and Dash are down roughly 5.25% and 24.37% for the year.
