Bitcoin hit an all-time high following a rally triggered by the Securities and Exchange Commission's approval of Bitcoin exchange-traded funds.
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Bitcoin hit an all-time high following a rally triggered by the Securities and Exchange Commission's approval of Bitcoin exchange-traded funds.
Dan Kitwood/Getty Images
Bitcoin is at an all-time high.
After more than two years of “crypto winter,” the digital currency is making a big comeback after regulators approved a new Bitcoin investment fund this year, allowing retail investors to add Bitcoin to their portfolios. It is now easier to add.
Bitcoin has also benefited from strong gains across stock markets amid growing optimism about the health of the economy.
On Tuesday, Bitcoin surpassed $68,990.90, its highest since November 10, 2021, marking a gain of over 45% this year.
Why did Bitcoin hit an all-time high?
In two words: Bitcoin ETF.
Back in January, the Securities and Exchange Commission reluctantly gave the green light to about a dozen exchange-traded funds (ETFs) that track the price of Bitcoin.
ETFs are popular investment funds that track the prices of assets or indices, such as stock indexes or government bond indexes.
This approval could allow millions of investors to invest in Bitcoin without directly owning it.
These Bitcoin ETFs have had “erratic performance from the beginning,” said Brian Armor, director of North American passive strategies research at Morningstar.
But since then, “the skies have been clear and it's been smooth sailing,” he says. Billions of dollars have flowed into these funds.
This year, stock markets rose from Tokyo to New York. The photo shows an electronic bulletin board displaying the level of the Nikkei Stock Average on the Tokyo Stock Exchange on March 4, 2024.
Kazuhiro Nogi/AFP via Getty Images
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This year, stock markets rose from Tokyo to New York. The photo shows an electronic bulletin board displaying the level of the Nikkei Stock Average on the Tokyo Stock Exchange on March 4, 2024.
Kazuhiro Nogi/AFP via Getty Images
The broader market is also doing well. For example, all three major stock indexes, including the Dow Jones Industrial Average, recently hit record highs.
Wall Street is hopeful that Federal Reserve policymakers will soon be satisfied with the progress they've made in combating high inflation to begin cutting interest rates. This makes it easier for investors to buy riskier assets.
But haven't cryptocurrencies faced any problems recently?
surely. This period has been dubbed the “crypto winter” and has lasted most of the past two years.
Cryptocurrencies have been hit hard by the same factors that are affecting other markets such as stocks. The Fed has been aggressively raising interest rates to fight inflation, sparking fears that the economy could slip into recession.
Fraud and volatility in Bitcoin and other digital currencies have led to the collapse of a handful of crypto companies, the most spectacular of which was FTX, once one of the world's largest exchanges. .
Numerous arrests and prosecutions have followed since then, most notably a full conviction against FTX founder and former CEO Sam Bankman Fried, who is scheduled to be sentenced later this month. was. He may spend the rest of his life behind bars.
But ultimately, these arrests and bombings removed some of the bad actors in the crypto industry and improved sentiment towards cryptocurrencies.
This, combined with improving market optimism, appears to have lifted the “crypto winter”.
SEC Chairman Gary Gensler attends a meeting of senior financial regulators at the U.S. Treasury Department on December 14, 2023 in Washington, DC. Gensler frequently refers to the cryptocurrency sector as the “wild west.”
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SEC Chairman Gary Gensler attends a meeting of senior financial regulators at the U.S. Treasury Department on December 14, 2023 in Washington, DC. Gensler frequently refers to the cryptocurrency sector as the “wild west.”
Drew Angerer/Getty Images
What could go wrong?
There are many more.
Predicting the course of Bitcoin's price is something of a fool's errand, as Bitcoin is a speculative asset with no intrinsic value. Cryptocurrency investors have become accustomed to wild swings of hundreds, even thousands, of dollars each day.
In recent weeks, Wall Street has been scaling back expectations about how quickly and by how much the Fed can cut interest rates. If interest rates remain high, investors may decide to avoid riskier assets.
More broadly, there is always the risk that the economic environment will change. So far, the US economy has managed to avoid a sharp recession.
Finally, there is still a lot of regulatory uncertainty. The SEC, led by Chairman Gary Gensler, is acting boldly, relying on its existing enforcement powers to go after bad actors in the crypto world.
Gensler has not been shy about his concerns about what he calls the “wild west” of cryptocurrencies, and has repeatedly vowed to force players in the space to play by Wall Street rules.
So what will regulators do next?
It is highly likely that regulatory crackdowns on virtual currencies will continue around the world. In the US, both the SEC and the Department of Justice have made it clear that they will continue to pursue bad actors in this space, creating ongoing tensions and raising the possibility of further legal battles.
The SEC approved Bitcoin ETFs only after a major legal defeat forced it into its own hands.
Gensler emphasized in his statement endorsing these Bitcoin ETFs that he does not “endorse or support Bitcoin.”
“Investors should remain vigilant about the myriad risks associated with Bitcoin and products whose value is tied to cryptocurrencies,” Gensler said at the time. “Bitcoin is a primarily speculative and volatile asset that is also used for illegal activities such as ransomware, money laundering, sanctions evasion, and terrorist financing.”
