Bitcoin hit an all-time high of more than $69,000 (€63,000) this week before falling slightly, surprising investors with a notable recovery following the cryptocurrency's 2022 crash amid market turmoil. The price of Bitcoin has increased by more than 300% compared to November 2022, when it had fallen below $20,000.
The cryptocurrency's market capitalization also hit a record high of nearly $1.35 trillion. The combined value of the total crypto market currently stands at around $2.5 trillion, its highest level since November 2021 and just 10% below its all-time high of $2.8 trillion.
Bitcoin's resurgence can largely be attributed to investor enthusiasm around a new financial product tied to the digital currency: bitcoin ETFs. Anticipation for these ETFs, or exchange-traded funds, sparked months of speculation, culminating in a flurry of institutional activity after their debut on January 10 of this year.
These funds make it easier for investors to gain exposure to bitcoin without directly owning the virtual currency. According to Bloomberg Intelligence, investors have invested more than $7 billion in these investment products, fueling the rapid rise of bitcoin. US financial regulators have long been cautious about allowing bitcoin ETFs, citing concerns about fraud and manipulation.
"[The favorable climate for bitcoin in the US] "It's not because US regulators want to be more favorable," Jonathan Biers, chief investment officer at Farside Investors, a UK-based equity investment fund, told DW. "It is mainly due to the legal victories of the cryptocurrency industry, which defeated the SEC in court, resulting in a more favorable regulatory climate and more legitimacy, which is attracting more flow of US investors."
Along with the cryptocurrency rally, gold has also hit record highs, sending mixed messages about the risk appetite of traders in global markets.
Gold, which has historically been a safe haven for investors, is often sought after in times of geopolitical tensions and when investors are concerned about a potential pullback in global stocks after a rally. The value of gold has risen steadily since October, when the war between Israel and Hamas broke out. Stock markets have also reached all-time highs in recent months. Many suspect that there will be a correction soon.
The rise of gold contrasts with that of bitcoin, whose usefulness beyond speculative investment remains a topic of debate. While gold's rise suggests investors are acting defensively, bitcoin's rise reflects a hunger for digital assets fueled by speculative fervor and technological innovation.
"The story of cryptocurrencies can be tied to what's happening in stock markets and broader risk-taking," Kyle Rodda, senior market analyst at Capital.com, told Bloomberg. "We are seeing a resurgence of meme coins that suggests irrational and risk-taking behavior, which is consistent with what is happening in some parts of the stock market."
Signals from the U.S. Federal Reserve that interest rates are likely to fall this year could also be fueling the rally, as investors anticipate lower borrowing costs.
Bitcoin emerged after the 2008 financial crisis as a decentralized alternative to traditional finance. Initially intended for peer-to-peer transactions, its value increased in the following years, leading to speculation and extreme volatility. Amateur day trading during the pandemic exacerbated its rise. But the bubble eventually burst, marked by corporate collapses like that of major cryptocurrency exchange FTX in November 2022, which wiped out billions in investor wealth and sent the value of bitcoin plummeting to around $16,000.
"FTX was essentially a fraudulent business," Bier said, "so of course it's good for society that this fraud has been exposed and collapsed."
So what's next? Bitcoin's impending "halving" event, programmed into its underlying code, will halve the number of new bitcoins entering circulation.
Bitcoin is produced through a process called “mining,” where powerful computers solve complex mathematical puzzles to verify and record transactions on the blockchain, giving “miners” new bitcoins as rewards. Halving events, which occur approximately every four years, reduce the reward given to miners, slowing the rate at which new bitcoins are generated.
Analysts have cited this bitcoin supply shortage as a driving force behind the recent price surge. With a halving expected this spring, bitcoin fans anticipate further price increases.
However, critics remain skeptical about the digital asset, highlighting concerns about its usefulness and regulatory challenges after the 2022 crisis.
“There is no inherent value,” John Reed Stark, a former SEC official and outspoken critic of the crypto industry, told the New York Times. "There is no proven history of adoption or dependency."
