NEW YORK, December 5, 2023 – Bitcoin is once again in the spotlight. On Monday, the world’s largest cryptocurrency soared past $41,000 for the first time in over a year and a half, marking a remarkable 150% rise so far this year.
According to FactSet, Bitcoin's journey has been marked by significant volatility, skyrocketing from just over $5,000 at the start of the pandemic to nearly $68,000 in November 2021 due to a surge in demand for technology products. However, prices plummeted amid a series of aggressive Federal Reserve rate hikes aimed at controlling inflation and the collapse of FTX, one of the largest companies in the crypto industry.
By the beginning of 2023, a single bitcoin was worth less than $17,000, having lost more than 75% of its value. However, as inflation began to cool, investors returned in large numbers. The collapse of prominent tech-focused banks also prompted more investors to turn to crypto, moving away from positions in Silicon Valley start-ups and other risky investments.
Industry advocates suggest that investing in bitcoin at spot prices, rather than futures, could simplify entry into the cryptocurrency market while reducing some of the associated risks. Although regulators have previously rejected bitcoin spot ETF applications, recent successes for some crypto fund managers have increased the likelihood of the first approval, potentially as soon as next month.
“The longer-term catalyst for bitcoin is a lot of optimism related to the potential approval of a spot ETF,” said Kaiko research analyst Riyad Carey on Monday. However, he noted that regulatory approval does not guarantee continued gains.
While analysts believe that the potential approval of spot bitcoin ETFs could attract a much larger pool of crypto investors, future trading volumes remain uncertain. This uncertainty could either boost or undermine bitcoin’s value.
Bitcoin’s current rally also comes during a tumultuous period for cryptocurrencies. Last month, the U.S. government fined Binance, the world’s largest crypto exchange, $4 billion, and its founder Changpeng Zhao pleaded guilty to a felony charge. Despite this, Binance continues to operate and maintain its market share. Carey pointed out that the company’s settlement removed a significant overhang, propelling the market forward.
Despite the recent excitement around bitcoin, experts caution that crypto remains a risky investment with highly unpredictable price fluctuations. Investors can lose money just as quickly as they can make it.
Edward Moya, a former senior market analyst at Oanda, previously told The Associated Press that the collapse of crypto exchange giant FTX last year left a significant scar on public confidence in the crypto industry and severely impacted retail investors. Currently, institutional money, such as hedge funds, is behind the bulk of crypto investing.
Carey added that liquidity in cryptocurrency markets has yet to return to pre-FTX levels, and lower liquidity can exacerbate price volatility. “In the past few months, that has normally been the price moving up — but people should always be aware it can go in the reverse and quickly,” he said.
As of around 1:30 p.m. Eastern time on Monday, the price of bitcoin stood at $41,709.
While the stocks of some other crypto players have also risen over recent months, they have not matched the speed or heights of bitcoin. For instance, Ethereum was priced at $2,223 on Monday afternoon, up 85% since the start of 2023. Meanwhile, Binance Coin and Dash have declined by about 5.25% and 24.37% for the year, with prices around $231 and $32, respectively.