Bitcoin is on the doorstep of $100,000 as the post-election rally continues

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NEW YORK (AP) — Bitcoin topped $98,000 for the first time on Friday, extending its streak of daily highs since the U.S. presidential election. The cryptocurrency has rocketed more than 40% in just two weeks.

Currently, bitcoin is on the threshold of $100,000 and investors do not seem phased by gravity or cautionary tales about the history of volatility of cryptocurrencies.

Cryptocurrencies and related investments like crypto exchange-traded funds have rallied as the incoming Trump administration is expected to be more “crypto-friendly” than the outgoing Biden administration.

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At 8:30 a.m. ET, bitcoin was trading at $97,466 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.

Back it up. What is cryptocurrency again?

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.

Why are bitcoin and other crypto assets rising?

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Many recent actions are related to the results of the US election.

Trump has evolved from crypto skeptic to crypto champion and has promised 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 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.

Digital assets like bitcoin have generated significant gains in the months leading up to the election, mostly due to the early success of a new way to invest in these assets: spot bitcoin ETFs, which were approved by US regulators in January.

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Inflows to point 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 following the election.

In April, bitcoin also saw its fourth “halving” – a pre-programmed event that affects production by cutting the reward for mining, or creating new bitcoins, in half. As the reward falls, so does the amount of new bitcoins that enter the market. And, if demand remains strong, some analysts say this “supply shock” could also help prices in the long run.

What are the risks?

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.

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Investors began to return in large numbers when inflation began to cool – and profits skyrocketed in anticipation and then the initial success of ETFs. Experts are still cautious, especially for small investors.

What about climate impacts?

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% 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, in line with climate protection demands.

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