The Recent Bitcoin Rally: What’s Behind the Surge and Can It Continue?
If you think stocks have been on a tear, just look at the market for cryptocurrency, where prices soared at dizzying rates last year. What’s behind this rally, and can it continue?
Start with Bitcoin. It’s up 69% recently, thanks to a rally that began in early October. After tumbling in 2022, the best-known digital token doubled last year. Less familiar Bitcoin alternatives rose even more. Shares in one crypto company, Coinbase Global (COIN), shot up a staggering 391% in 2023.
Speculators Betting on Bitcoin ETFs Launch
Speculators are betting on new Bitcoin funds that could launch soon. Financial regulators are due to decide whether to allow several Bitcoin ETFs, exchange-traded funds, that would give investors much easier access to Bitcoin via their brokerages. BlackRock, Fidelity, Wisdomtree, and Invesco are some of the sponsors hoping to launch such ETFs.
An Upcoming Halving: Will it Impact Bitcoin’s Price?
The supply of new Bitcoin is also due to slow thanks to an upcoming “halving.” Every four years, the algorithm that governs Bitcoin (BTC/USD) cuts the amount “miners” get paid to unlock new coins by half. The energy-intensive computing power miners need to solve the increasingly complex computing problems that unlock new Bitcoin could become too costly. Previous halvings led to big jumps in the currency’s price.
Cryptocurrency Gaining Trust: Legal Actions and Increased Investor Interest
There’s also hope that cryptocurrency is shaking off its sketchy image. The frauds perpetrated by one-time crypto kingpin Sam Bankman-Fried showed the ugly side of crypto as a potential medium for ripping off naive investors. His recent prosecution, plus other legal actions against bad actors in the industry, could renew public trust.
Clearly, more people are buying and selling various digital coins. The number of accounts that can receive crypto has doubled over the past two years, to 15 million. And more investors with deep pockets are getting involved. Venture capital flowing into the market hit $11 billion last year and is expected to increase in 2024.
Wary Outlook: Scams, Regulation, and Crypto’s Speculative Nature
And yet, there are plenty of reasons to be wary. Cryptocurrency is famous for booms and busts. Prices peaked in 2021, crashed in 2022, and soared again in 2023 but haven’t regained their former tops. Plenty of money has been lost on that wild ride.
Most crypto is still used for speculation, not as a medium of exchange, which was its original purpose. Few people buy things with crypto, and few businesses accept it as a payment option. For most users, it’s more like digital gold, a new asset that offers an alternative to traditional investments and the hope of getting rich fast.
Yet, scams still abound, and regulation remains patchy at best. In the U.S., crypto is generally regulated under existing regulations for other products and commodities. There is no overarching, crypto-specific set of rules to create a level playing field and give investors the confidence that they truly understand how the market works.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money.
As an analyst, it is expected that the market for cryptocurrencies will continue to experience volatility, with potential booms and busts. However, the overall trend seems to be more positive, with increased adoption and investment in the market. However, risks such as scams and regulatory uncertainties still exist, which could impact the market.
