Despite the recent controversy surrounding the cryptocurrency industry, bitcoin, the world’s most important token, is making a comeback. The value of bitcoin soared to nearly $42,000 on Monday, marking the first time the digital currency cracked $40,000 in 18 months.
This resurgence comes in contrast to the questions that have dogged the sector since last year’s spectacular flameout of crypto exchange FTX. In November, FTX founder Sam Bankman-Fried was convicted of seven counts of fraud. Also last month, Binance, the world’s largest cryptocurrency exchange platform, agreed to pay $4.3 billion after admitting that it violated U.S. laws to prevent money laundering and sanctions violations. Binance CEO Changpeng Zhao pleaded guilty to one federal charge.
Despite these scandals, bitcoin’s price has soared 150% this year, although it remains down from a high of roughly $69,000 in late 2021.
What is Bitcoin?
Bitcoin is the first cryptocurrency and was created in 2009. Cryptocurrencies are digital tokens that use peer-to-peer technology to facilitate instant payments without the need for a third party such as a bank or payment processor. Bitcoin was created by an anonymous person or group of people under the name Satoshi Nakamoto.
Sure. Here are some of the reasons why bitcoin is surging now:
- Increased institutional interest: Major investment firms are getting regulatory approval to offer spot bitcoin exchange traded funds (ETFs), which are pooled investment securities that can be bought and sold like stocks. This could make investing in bitcoin more accessible to institutional investors, who have traditionally been more cautious about cryptocurrencies.
- Scarcity: Bitcoin has a finite supply of 21 million coins, which could make it more valuable as demand increases.
- Inflation hedge: Some investors believe that bitcoin can be a hedge against inflation, as it is not subject to the same government control as traditional fiat currencies.
Of course, there are also some risks associated with investing in bitcoin, such as its volatility and the fact that it is still a relatively new asset class. However, the potential rewards could be significant, and bitcoin is certainly an investment worth considering for those with a long-term investment horizon.
Bitcoin prices are also benefiting from a growing conviction on Wall Street that the Federal Reserve is done hiking its benchmark interest rate now that inflation is receding and that the central bank could even start loosening monetary policy by mid-2024 to keep the economy on track.
When interest rates fall, investors are more likely to pour money into riskier assets such as crypto.
“Lower rates are bullish for bitcoin,” Greg Magadini, director of derivatives at crypto data firm Amberdata, told CBS MoneyWatch.
Giokas thinks 2024 could be a banner year for bitcoin, a proxy for how well the crypto market as a whole is doing.
Bitcoin “hit $40,000 for the first time in 2021, and every time it was followed by a bull run, so it’s a logical expectation from the markets that another run is on its way,” he said.
— The Associated Press contributed reporting.
