Bitcoin topped $98,000 for the first time on Friday, extending its streak of daily highs since the US presidential election. The cryptocurrency has rocketed more than 40% in just two weeks.
Currently, bitcoin is on the doorstep of $100,000 and investors don’t seem to be swayed by gravity or the cautionary tales of cryptocurrencies’ history of volatility.
Cryptocurrencies and related investments such as crypto exchange-traded funds have rallied as the incoming Trump administration is expected to be more “crypto-friendly” than the outgoing Biden administration.
At 11:02 am ET, bitcoin was trading at $96,747 after rising as high as $98,349 according to CoinDesk.
But the cryptocurrency market remains a wild place and what comes next is unpredictable. And while some are bullish, other experts warn of investment risks.
Here’s what you need to know.
Cryptocurrency has been around for a while now but has been in the spotlight in recent years.
In basic terms, cryptocurrency is digital money. This type of currency is designed to work over an online network without any central authority – meaning it is usually not backed by governments or banking institutions – and transactions are recorded using a technology called blockchain.
Bitcoin is the largest and oldest cryptocurrency, although other assets like Ethereum, Tether and Dogecoin have gained popularity over the years. Some investors see cryptocurrency as a “digital alternative” to traditional money – but it can be highly volatile, with prices dependent on larger market conditions.
Trump’s election victory boosted crypto
A lot of new actions have to do with it US election results.
President-elect Donald Trump, who has been critical of digital currencies, promises during the campaign told Vice President Kamala Harris to make the US the “crypto capital of the planet” and create a “strategic reserve” of bitcoin. His campaign is accepting donations in cryptocurrency and he invited his fans to a bitcoin conference in July. He also launched World Liberty Financial, a new venture with family members to trade cryptocurrencies.
Crypto industry players welcomed Trump’s victory, hoping it would push for long-lobbied legislative and regulatory changes. Trump has also promised that, if elected, he will remove the chairman of the Securities and Exchange Commission, Gary Gensler, who has led the US government’s crackdown on the crypto industry and has repeatedly called for more oversight.
Spot bitcoin ETFs
Digital assets like bitcoin have generated significant gains in the months leading up to the election, mostly due to the early success of new ways to invest in these assets: spot bitcoin ETFs, which was approved by US regulators in January.
A spot bitcoin ETF allows investors to gain direct exposure to bitcoin without holding it. Unlike regular bitcoin ETFs, where bitcoin futures contracts are the underlying asset, bitcoin is the underlying asset of spot bitcoin ETFs. Each spot bitcoin ETF is managed by a company that issues shares from its own bitcoin holdings purchased through other holders or through legitimate cryptocurrency exchanges. The shares are listed on traditional stock exchanges.
Inflows to the point of ETFs, “has been the dominant driver of Bitcoin returns for some time, and we expect this relationship to continue in the near-term,” Citi analysts David Glass and Alex Saunders wrote in a research note two weeks ago. He added that spot crypto ETFs saw some of the biggest inflows on record in the days after the election.
Bitcoin volatility
History shows you can lose money in crypto as fast as you make it. Long-term price behavior depends on larger market conditions. Trading continues at all hours, every day.
At the start of the COVID-19 pandemic, bitcoin was worth just over $5,000. Its value rose to nearly $69,000 in November 2021, at a time marked by high demand for technology assets. Bitcoin then fell amid an aggressive series of Federal Reserve rate hikes aimed at curbing inflation. The collapse of FTX at the end of 2022 significantly undermined confidence in crypto as a whole and bitcoin dropped below $17,000.
Investors began to return in large numbers as inflation began to cool – and earnings skyrocketed in anticipation and then the initial success of point ETFs. Experts are still cautious, especially for small investors.
How bitcoin mining works
Assets like bitcoin are produced through a process called “mining,” which uses a lot of energy. And operations that depend on sources of pollution have attracted special attention over the years.
New research published by the United Nations University and Earth’s Future journal found that the carbon footprint of bitcoin mining 2020-2021 in 76 countries is equivalent to the emissions of burning 84 billion kilograms of coal or running 190 natural gas power plants. Coal meets most of bitcoin’s electricity demand (45%), followed by natural gas (21%) and hydropower (16%).
The environmental impact of bitcoin mining is largely due to the energy used. Industry analysts say that clean energy has been increasingly used in recent years, coinciding with demands for climate protection.
