NEW YORK — NEW YORK (AP) — Bitcoin has hit an all-time high less than two years after the collapse of crypto exchange FTX severely damaged confidence in digital currencies and sent prices plummeting.
The world's largest cryptocurrency is up 4% this week and briefly topped $68,800 on Tuesday, according to CoinMarketCap. This is just above the previous Bitcoin record from November 2021.
The volatile asset soon fell somewhat, trading at just under $62,000 as of 3 p.m. ET, but the price is still more than 175% higher than a year ago.
The gains in recent months were fueled by the anticipation and eventual U.S. approval of Bitcoin exchange-traded funds earlier this year, giving access to a much broader range of investors. The price of Bitcoin has risen about 60% since Bitcoin ETFs were approved in January. This is an easy way to invest in assets or a group of assets – such as gold, junk bonds or Bitcoins – without having to directly purchase the assets themselves.
Another driver for prices is the so-called Bitcoin halving, which is expected in April. Halvings reduce the speed at which new coins are mined and created, thereby 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 spot Bitcoin ETFs from asset managers such as Blackrock, Invesco and Fidelity. These newly approved ETFs hold real Bitcoin – unlike previous Bitcoin-related ETFs, which were invested in contracts related to future price bets, but not the cryptocurrency itself.
While regulators have highlighted the ongoing risks and maintained their reluctance over the January decision, the green light marked a major victory for the crypto industry.
Institutional demand for Bitcoin shows “no signs of slowing,” HC Wainwright’s Mike Colonnese and Dylan Scales wrote on Tuesday, adding that Bitcoin’s popularity “is likely to increase in the coming months as more asset management platforms adopt spot (Bitcoin- )Make ETFs accessible to your customers.”
Using data from crypto platform BitMEX, Colonnese and Scales estimated that the 10 Bitcoin ETFs recorded an average of $302 million in daily net inflows in February. Last week alone, these spot ETFs saw record inflows of $1.7 billion – bringing total net inflows of $7.5 billion since their launch on January 11th.
Halving on the horizon
The increased demand also coincides with Bitcoin's next halving, expected at the end of April.
The Bitcoin halving, which occurs every four years, involves halving the reward for Bitcoin mining. This reduces the speed at which new coins are created, making supply more scarce.
While analysts say limited supply during times of high demand can drive Bitcoin prices higher over time, others point to the significant volatility that occurred before and after the halving events – and the possibility of significant declines.
“History may not be a reliable guide to predict how Bitcoin's upcoming halving will affect its value,” noted Rajeev Bamra, senior vice president of digital finance at Moody's Investors Service. “Various external factors, changes in market sentiment and regulatory developments can influence the development of the Bitcoin price.”
A HISTORY OF VOLATILITY
Bitcoin has a history of experiencing drastic fluctuations in value, which can occur suddenly and occur on weekends or overnight when trading takes place 24 hours a day, every day.
Bitcoin rose from just over $5,000 at the start of the pandemic to its peak of nearly $69,000 in November 2021, at a time marked by a surge in demand for technology products. Prices plunged during an aggressive series of interest rate hikes by the Federal Reserve aimed at cooling inflation, slowing the flow of money and making risky investments potentially riskier. Then came the FTX collapse in 2022, which significantly undermined confidence in cryptocurrencies.
At the beginning of last year, a single Bitcoin could be had for less than $17,000. However, as inflation began to cool, investors returned in large numbers. And the collapse of prominent tech-focused banks in 2023 actually led to more investors turning to cryptocurrency as they exited positions in Silicon Valley startups and other risky bets.
Despite the recent excitement surrounding Bitcoin, experts still believe that cryptocurrencies are a risky bet with completely unpredictable fluctuations in value. In short, investors can lose money just as quickly as they make it.
“It is important to exercise caution and recognize that the future of the digital financial ecosystem, particularly crypto markets, is likely to experience a period of volatility,” Bamra noted, noting the importance of “cautious optimism.”