NEW YORK (AP) — Bitcoin has hit an all-time high less than two years after the collapse of the crypto exchange FTX severely damaged faith in digital currencies and sent prices plunging.

The biggest digital currency in the world saw a 4% increase this week and briefly reached over $68,800 on Tuesday, according to CoinMarketCap. This is slightly higher than bitcoin’s previous all-time high in November 2021.

The unstable investment quickly decreased, reaching just below $62,000 at 3 p.m. ET, yet the value is still 175% higher than it was a year ago.

The rise in value in the past few months has been driven by the expectation and eventual green light from the U.S. for bitcoin exchange traded funds. This has allowed a wider range of investors to enter the market. The price of bitcoin has increased by 60% since the approval of these ETFs in January, offering a convenient way to invest in assets such as gold, junk bonds, or bitcoins, without needing to purchase the actual assets.

A significant factor contributing to the cost movement is the upcoming “halving” of Bitcoin, which is expected to occur in April. Halvings decrease the speed of generating new coins, consequently decreasing the overall supply.

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In January, the Securities and Exchange Commission of the U.S. passed the first spot bitcoin ETFs from asset management companies such as Blackrock, Invesco, and Fidelity. These recently approved ETFs contain physical bitcoin, in contrast to previous bitcoin-related ETFs that only invested in contracts based on future price speculation, rather than the actual cryptocurrency.

Although there are still concerns and hesitation among regulatory bodies regarding the January decision, granting the approval signified a significant victory for the cryptocurrency sector.

According to H.C. Wainwright analysts Mike Colonnese and Dylan Scales, the demand for bitcoin among institutions continues to grow and is expected to increase even further as more wealth management platforms offer access to spot bitcoin ETFs for their clients.

Colonnese and Scales used information from BitMEX, a crypto platform, to calculate that the average daily net inflows for the 10 Bitcoin ETFs in February was $302 million. In just one week, these spot ETFs experienced a new high of $1.7 billion in inflows, resulting in a total of $7.5 billion in net inflows since their launch on Jan. 11.

The rising demand coincides with bitcoin’s upcoming halving, set to occur in late April.

Every four years, there is a significant event in the world of bitcoin known as halving. During this event, the reward given for bitcoin mining is reduced by half. As a result, the rate at which new bitcoins are produced decreases, making the supply of bitcoins more limited.

Experts claim that during periods of limited availability amid increased interest, bitcoin’s value may rise gradually. However, some also highlight the potential for significant fluctuations, both leading up to and following halving events, with the potential for substantial decreases.

Bamra, the senior VP of digital finance at Moody’s Investors Service, believes that past events may not accurately indicate how the upcoming halving of bitcoin will impact its value. He also acknowledges that external forces, changes in market sentiment, and shifts in regulations can all impact the direction of bitcoin’s price.

Bitcoin is known for experiencing significant fluctuations in worth, often occurring unexpectedly and possibly even during off-hours trading.

During the pandemic, Bitcoin experienced an unprecedented rise, shooting up from around $5,000 to its peak of almost $69,000 in November 2021. This increase was driven by a high demand for technology products. However, as the Federal Reserve implemented a series of rate hikes to combat inflation and manage investments, prices plummeted. In 2022, the collapse of FTX also greatly weakened trust in the cryptocurrency market.

At the beginning of the previous year, one bitcoin was valued at under $17,000. As inflation began to decrease, investors flocked back to the market. Additionally, the decline of major tech-based banks in 2023 prompted even more investors to shift their focus to cryptocurrency instead of risky investments in Silicon Valley startups and other ventures.

The current hype surrounding bitcoin does not sway the belief of experts that cryptocurrency remains a gamble with highly unpredictable and fluctuating worth. Ultimately, gains can be lost as quickly as they are earned for investors.

Bamra emphasizes the need for caution and recognition of the challenges that lie ahead for the digital finance world, specifically in the realm of cryptocurrency trading. He highlights the significance of approaching with “cautious optimism” during a time of predicted instability.

Source: wral.com