The cryptocurrency was trading at just $US16,000 at the depths of a crisis brought on by the FTX collapse. It set a fresh high early on Wednesday morning.
Bitcoin’s nerve-jarring volatility shows little sign of abating, with the world’s largest cryptocurrency briefly soaring to a fresh record high of $US69,200 ($106,462) in the early hours of Wednesday (AEDT).
But this set the scene for a sharp reversal, with bitcoin’s price plunging to $US62,182 hours later, leaving it below its previous high of $US68,990 set in November 2021.
Bitcoin’s sharp decline came as the sharemarket in the United States lost ground because of worry among investors about the Federal Reserve chairman Jerome Powell’s message in his testimony before Congress later this week.
All the same, bitcoin enthusiasts believe that the cryptocurrency will soon resume its upward trajectory. They point out that bitcoin has enjoyed a stunning surge after its 2022 crash, which followed the implosion of crypto-focused hedge fund Three Arrows Capital and the collapse of Sam Bankman-Fried’s FTX exchange after a run on deposits.
When FTX filed for bankruptcy in November 2022, confidence was so shaken that bitcoin traded at just above $US16,000.
But bitcoin has regained its mojo this year, helped in no small part by a decision by US regulators which allowed Wall Street to move more heavily into cryptocurrencies.
In January, the Securities and Exchange Commission gave the green light to the first exchange-traded funds that hold bitcoin to be sold to the public.
This move allowed mainstream investors to buy and sell bitcoin as easily as shares, without having to trade on crypto exchanges and pay hefty transaction fees.
And investors have embraced these new “spot” bitcoin ETFs with relish, pouring some $US15 billion into funds managed by the likes of firms such as BlackRock, Fidelity Investments, Invesco and ARK Investment Management. BlackRock, the world’s largest asset manager, alone has attracted $US7 billion into its spot bitcoin ETF.
A sign of exuberance
Enthusiasts point to another reason for the digital currency’s latest surge – bitcoin’s halving which is scheduled for next month.
This adjustment, which happens every four years, will cut in half the number of bitcoin that can be unlocked by miners. Some investors expect that bitcoin’s price will continue to rise as its supply is restricted.
But critics believe that bitcoin’s surge is simply a sign of the same investor exuberance that has propelled the US sharemarket to a series of fresh record highs this year.
They point out that the Crypto Feed and Greed Index – an analysis of sentiment in the industry compiled by developers at Alternative.me – rose to 90 out of 100 in US trading on Tuesday, signalling ‘Extreme Greed’.
What’s more, they argue that it’s significant that the price of gold also surged to a fresh record on Tuesday night, amid massive buying by Chinese investors who are using the precious metal as a safe haven after the steep declines in the Chinese property and sharemarkets.
Critics point out that net buying of bitcoin is largely taking place on one offshore exchange – Binance – which suggests that purchases outside the US are driving the cryptocurrency’s latest surge.
Last November, Binance chief executive Changpeng Zhao stepped down and pleaded guilty to violating US anti-money-laundering requirements. Binance also agreed to pay a $US4.3 billion fine, as part of a deal that allowed the world’s largest cryptocurrency exchange to continue to operate.
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