The Bitcoin price currently only knows one direction: up. The crypto project survives stark crashes and spectacular scandals. What’s going on there?
The comeback is impressive: After Bitcoin crashed to under $17,000 in November 2022, the crypto project started a rally and raced to a previously unattainable price of more than $69,000. Bitcoin not only shook off the collapse of the crypto exchange FTX and the conviction of its founder Sam Bankman-Frieds for financial fraud and money laundering. Before Bitcoin took off, Changpeng Zhao, another crypto icon and founder of the world’s largest crypto exchange Binance, pleaded guilty to money laundering in a US court.
This is also notable because it impressively reinforced Bitcoin’s reputation as a suitable way to be cheated. Bitcoin has been around since 2010. At first it had a niche existence and was then often used by criminals – for example to launder money or as currency for ransom demands. Many crypto coins are created just so that their creators can make off with the money of those who actually bought such rip-off products.
But Bitcoin has nevertheless entered the mainstream, even though the project, which is often referred to as a “currency”, has no major meaningful legal use. Payments are rarely made with Bitcoin; the only attraction was and is to enjoy price increases. In its short history, Bitcoin has often crashed spectacularly. But in contrast to other financial hypes – such as the tulip craze in the Netherlands – it always managed to have an equally spectacular resurrection.
Since the beginning of the year, the Bitcoin price has shot up by more than 50 percent. The main trigger is that listed Bitcoin funds have been approved in the USA. These so-called ETFs allow investors to easily invest money in Bitcoin. According to the business magazine “Economist,” there are now around $50 billion in the ten largest of these Bitcoin ETFs. Bitcoin is establishing itself as a serious asset.
On the way to the establishment
Not only the approval of ETFs monitored by US authorities, but also the collapse of the FTX exchange and the fall of formerly celebrated crypto kings contributed to this. The more regulated and reputable Bitcoin becomes, the greater the trust. Bitcoin is increasingly similar to gold as a form of investment. The supply of the precious metal is also limited; like Bitcoin, it does not generate any interest and is added by investors as an addition to the portfolio. Gold also recently reached a record high.
The price development of Bitcoin looks like a mountain range with peaks and valleys. These fluctuations often do not correspond exactly to those that occur at the same time, for example on the stock or bond market. An asset that does not move in parallel with other forms of investment can help diversify a portfolio.
It is impossible to predict what will happen next with Bitcoin. At the moment it looks as if Bitcoin could become a normal asset class. It will probably take some time before it finds its way into most portfolios. Many small investors are still keeping their hands off Bitcoin; so far, institutional investors who have entered the market are primarily responsible for the price increase. If Bitcoin succeeds in its march through the institutions, the transformation from anti-establishment to mainstream would be complete. The price development could then be like that of gold: more boredom, less drama.