NEW YORK — NEW YORK (AP) — Bitcoin is having a moment again. On Monday, the world's largest cryptocurrency rose above $41,000 for the first time in more than a year and a half — a 150% increase so far this year.
Volatile bitcoin skyrocketed from just over $5,000 at the start of the pandemic to nearly $68,000 in November 2021, according to FactSet, a period marked by a surge in demand for technology products. Prices fell back to earth amid an aggressive series of rate hikes by the Federal Reserve aimed at curbing inflation and then the collapse of FTX, one of the largest crypto companies.
When 2023 began, a single bitcoin could be bought for less than $17,000, having lost more than 75% of its value. However, investors began returning in large numbers as inflation began to cool. And the collapse of prominent tech-focused banks has actually led more investors to turn to crypto as they exit positions in Silicon Valley startups and other risky bets.
But this latest rally is fueled by prospects for the possible adoption of spot-traded bitcoin funds – a pooled investment security that can be bought and sold like stocks.
Industry advocates say this new way of investing in bitcoin at bargain prices, instead of futures, could make it easier for anyone to enter the crypto world, while eliminating some of the well-documented risks associated with investing in cryptocurrencies reduced. Regulators have previously rejected bitcoin spot ETF applications, but recent wins for some crypto fund managers have improved the chances of an initial approval, perhaps as early as next month.
“The longer-term catalyst (for bitcoin) is a lot of optimism regarding the potential approval of a spot ETF,” Kaiko research analyst Riyad Carey said Monday. However, he noted that the regulatory green light does not promise further gains.
While analysts expect the potential adoption of spot bitcoin ETFs to create a much larger pool of crypto investors, future volumes could go either way, Carey added. That could increase or undermine Bitcoin's value.
Bitcoin's current rally also comes during an incredibly disruptive period for cryptocurrencies. Just last month, the US government fined Binance, the world's largest cryptocurrency exchange, $4 billion after founder Changpeng Zhao pleaded guilty to a misdemeanor charge.
But Binance continues to operate and maintain its market share, Carey noted. In some ways, the company's settlement has “propelled the market further forward by removing one of the… more ominous overhangs that were kind of a big question mark,” he said, pointing to Bitcoin's gains in the two weeks since the settlement was announced. .
Despite the recent excitement around bitcoin, experts still argue that crypto is a risky bet with wildly unpredictable value fluctuations. In short, investors can lose money as quickly as they make it.
The collapse of crypto exchange giant FTX last year also “left a big scar” on public confidence in the crypto industry and crushed retail investors, Edward Moya, a former senior market analyst at Oanda, previously told The Associated Press – noting that institutional money, like hedge funds, are responsible for the majority of current crypto investments.
Carey added that liquidity in cryptocurrency markets has yet to return to levels before the FTX collapsed, and that lower liquidity could exacerbate price swings.
“Over the last few months that has normally been the price increase, but people should always be aware that it can go the other way and quickly,” he said.
At around 1:30 PM Eastern Time on Monday, the price of Bitcoin was at $41,709.
The shares of some other crypto players have also risen in recent months, but not at the same speed or heights as bitcoin. For example, Ethereum was at $2,223 on Monday afternoon, up 85% since the start of 2023. Meanwhile, Binance Coin and Dash are down about 5.25% and 24.37% respectively this year, with prices on Monday afternoon of around $231 and $32.