Cryptocurrency enthusiasts celebrated on Tuesday as the price of Bitcoin reached an all-time high of more than $69,000. For believers, it was a vindication moment for the 2022 industry recession that drove several major companies into bankruptcy and tarnished the reputation of cryptocurrencies.
But have cryptocurrencies really come back from the dead? Numbers suggest the industry is starting to thrive again, but during this bull market and the euphoria that pushed crypto prices to all-time highs, There is a big difference.
Here's what you need to know about the proliferation of new cryptocurrencies.
Why did cryptocurrencies collapse in the past?
The last time Bitcoin hit a record was in November 2021, when the cryptocurrency became a cultural phenomenon. Cryptocurrency executives interacted with celebrities and their companies ran massive marketing campaigns featuring Super Bowl commercials.
Prices plummeted in the spring of 2022 as some of the most prominent crypto companies were exposed as fraudulent. People who put their savings into cryptocurrencies lost everything. The decline reached its peak in November 2022, when the cryptocurrency exchange FTX, founded by Sam Bankman Fried, collapsed following what amounted to a run, costing customers $8 billion.
Since then, Bitcoin has plummeted. After hitting a low of around $16,000 after the FTX implosion, the cryptocurrency's price soared to $69,000.
How did Bitcoin rebound?
A major turning point in the cryptocurrency industry came in August, when a court ruling paved the way for financial companies to offer new investment products linked to the price of Bitcoin. The product, called an exchange-traded fund (ETF), offered investors a way to dabble in cryptocurrencies without directly owning them.
Essentially, an ETF is a basket of assets divided into stocks. Investors buy stocks rather than the assets themselves. The introduction of Bitcoin ETFs meant that cautious investors could dip their toe into the crypto market without having to worry about setting up a digital wallet or entrusting their savings to a shady startup.
The impact was immediate. Since the ETFs hit the market in January, more than $7.5 billion has flowed into these ETFs, driving up the price of Bitcoin.
What makes this surge different?
When cryptocurrencies boomed in 2021, their rise was driven, at least in part, by retail investors stuck at home during the pandemic turning to online investing as a new hobby. became. They hoarded so-called meme coins, cryptocurrencies based on online jokes, and stored their digital savings in new cryptocurrency banks with sketchy business models. Non-fungible tokens, crypto-based collectibles known as NFTs, also soared in price.
This time, Bitcoin is leading the way. Other tokens also rose in value, but never reached their previous heights (although there was renewed interest in meme coins). And Bitcoin's rise has been driven by support from major financial institutions like BlackRock and Fidelity, which offer Bitcoin ETFs.
Michael Anderson, founder of cryptocurrency investment firm Framework Ventures, said 2021 is “obviously very different.” “This could become an institution-driven cycle.”
So, have cryptocurrencies really returned?
Cryptocurrency boosters say Bitcoin's soaring price is just the beginning. They assume that the cryptocurrency's price could exceed $100,000 after several months of strong gains.
Even if they are correct, it does not necessarily mean that the industry as a whole will prosper. Federal regulators have more or less made peace with the fact that people are trading Bitcoin in the United States. However, they are hostile towards other digital currencies and the platforms that offer them.
The Securities and Exchange Commission has filed a lawsuit against Coinbase, the largest U.S. exchange, and several other large companies. The results of these lawsuits are still pending in court and could determine whether cryptocurrencies can continue to grow in the United States.
“This industry changes in cycles,” said John Todaro, a crypto analyst at Needham. “There are checks and balances in place right now, so we don't know if we'll get back to 2021 levels.”
