By WYATTE GRANTHAM-PHILIPS | AP Business Writer
NEW YORK โ Bitcoin has hit an all-time high less than two years later the collapse of the FTX crypto exchange It severely damaged faith in digital currencies and caused prices to crash.
The world's largest cryptocurrency jumped 4% this week and briefly topped $68,800 on Tuesday, according to CoinMarketCap. That's just above bitcoin's previous record set in November 2021.
The volatile asset soon fell a bit, settling at just under $62,000 as of 3 pm ET, but the price is still more than 175% higher than a year ago.
Profits in recent months have been driven by anticipation and eventual
, 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, 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. assets.
Also driving prices is what is known as the bitcoin โhalving,โ which is anticipated for April. Halvings reduce the rate at which new coins are mined and created, reducing supply.
Here's what you need to know.
In January, the U.S. Securities and Exchange Commission approved the first spot bitcoin ETFs from asset managers including Blackrock, Invesco and Fidelity. These newly approved ETFs contain actual bitcoins, unlike previous bitcoin-related ETFs that were invested in contracts related to future price bets, but not the cryptocurrency itself.
While regulators have flagged lingering risks and maintained their reluctance around 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 accelerate in the coming months as more wealth management platforms make (bitcoin) spot ETFs accessible to their clients.โ clientele."
Using data from crypto platform BitMEX, Colonnese and Scales estimated that the 10 bitcoin ETFs averaged $302 million in daily net inflows during the month of February. Last week alone, these spot ETFs saw record inflows of $1.7 billion, bringing total net inflows to $7.5 billion since their launch on January 11.
The surge in demand is also aligning with the upcoming bitcoin halving event, expected at the end of April.
The Bitcoin halving, which occurs every four years, is when the reward for mining bitcoins is cut in half. This reduces the speed at which new coins are created, making supply scarcer.
While analysts say limited supply at a time of high demand can push up the price of bitcoin over time, others point to significant volatility that has occurred before and after the halving events, and the possibility of considerable falls.
"Past history may not be a reliable guide to predicting how bitcoin's upcoming halving will influence its value," said Rajeev Bamra, senior vice president of digital finance at Moody's Investors Service. "Various external factors, changes in market sentiment, and regulatory developments may influence the trajectory of Bitcoin's price."
Bitcoin has a history of dramatic changes in its value, which can occur suddenly and occur over the weekend or overnight in trades that continue around the clock, every day.
Bitcoin soared from just over $5,000 at the start of the pandemic to its peak of nearly $69,000 in November 2021, in a period marked by a surge in demand for technology products. Prices plunged during an aggressive series of Federal Reserve rate hikes aimed at cooling inflation, slowing money flows 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, investors began to return in large numbers as inflation began to cool. And the collapse of major tech-focused banks in 2023 actually led more investors to turn to cryptocurrencies as they exited 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 wildly unpredictable fluctuations in value. In short, investors can lose money as fast as they make it.
โIt is essential to proceed with caution and recognize that the path forward for the digital financial ecosystem, particularly crypto markets, is expected to go through a period marked by volatility,โ Bamra said, noting the importance of โcautious optimism.โ
