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NEW YORK — On Thursday, Bitcoin surpassed $98,000 for the first time, continuing a remarkable trend of almost daily record highs since the recent U.S. presidential election. In the span of just two weeks, the cryptocurrency has experienced a surge of over 40%.
Now poised on the verge of hitting the $100,000 mark, investor sentiment seems undeterred by past volatility in the cryptocurrency market.
Cryptocurrencies and related investments, such as crypto exchange-traded funds, have seen significant gains as the incoming Trump administration is anticipated to foster a more supportive environment for crypto than its predecessor, the Biden administration.
According to CoinDesk, Bitcoin was trading at approximately $97,466 as of 8:30 a.m. ET after peaking at $98,349 earlier in the day.
However, the world of cryptocurrencies remains unpredictable, and while some are optimistic about continued growth, there are experts who caution about the potential risks involved in investing in these digital assets.
So, what exactly is cryptocurrency?
Although it has been around for some time, cryptocurrency has garnered increased attention in recent years.
Simply put, cryptocurrency represents digital currency that operates through an online network without centralized authority, meaning it is not generally supported by any government or financial institutions. Transactions are recorded using a technology called blockchain.
Bitcoin is recognized as the largest and most established cryptocurrency, but other digital currencies like Ethereum, Tether, and Dogecoin have also gained traction. Some individuals view cryptocurrency as a modern substitute for traditional currency, but it is characterized by extreme price fluctuations, heavily influenced by broader market conditions.
Why are Bitcoin and other cryptocurrencies on the rise?
Much of the recent growth can be attributed to the outcome of the U.S. election.
After initially expressing skepticism about cryptocurrency, Trump has since embraced it, vowing to establish the U.S. as the “crypto capital of the planet” and proposing a “strategic reserve” of Bitcoin. His campaign even accepted donations in cryptocurrency and he has actively engaged with supporters at various crypto events, including a Bitcoin conference last July. Furthermore, Trump has launched World Liberty Financial, a venture with family members focused on crypto trading.
Following Trump’s election, many in the crypto sector are hopeful that he will enact legislative and regulatory changes they have long pushed for. Trump has also stated that he would remove SEC chair Gary Gensler, noted for his strict approaches toward the crypto industry and calls for tighter oversight.
Prior to the election, digital assets like Bitcoin had already started to achieve significant gains, primarily fueled by the introduction of spot Bitcoin ETFs, which received regulatory approval in January.
According to analysts from Citi, inflows into spot ETFs have recently become a major driving force behind Bitcoin’s performance, and this trend is expected to persist in the immediate future. They noted that the days following the election saw some of the highest inflows into these ETFs on record.
Additionally, Bitcoin underwent its fourth “halving” in April — a preset event that reduces mining rewards by half. As fewer new Bitcoins enter the market amidst sustained demand, some analysts suggest this “supply shock” could support long-term price increases.
What are the risks?
Cryptocurrency investment history illustrates that losses can occur just as swiftly as profits are made. The long-term price trajectory is deeply intertwined with broader market conditions, and trading operates continuously, 24/7.
At the onset of the COVID-19 pandemic, Bitcoin hovered just above $5,000, eventually soaring to nearly $69,000 by November 2021 amid a surge in tech asset demand. However, Bitcoin subsequently plummeted during a series of aggressive Federal Reserve interest rate hikes aimed at controlling inflation. The insolvency of FTX at the end of 2022 severely eroded confidence in the cryptocurrency market, causing Bitcoin prices to fall below $17,000.
However, as inflation rates began to stabilize, investor interest returned en masse, leading to skyrocketing gains thanks to the early success of spot ETFs. Yet experts still advise caution, especially for those with limited investment capacity.
What about the environmental impact?
Bitcoin production relies on a process known as “mining,” which is energy-intensive and has raised significant environmental concerns over the years due to the reliance on fossil fuels.
Recent studies by entities such as the United Nations University revealed that the carbon footprint from Bitcoin mining across 76 countries during 2020-2021 was equivalent to the emissions produced by burning 84 billion pounds of coal or operating 190 natural gas power plants. Notably, coal accounted for nearly 45% of Bitcoin’s energy needs, followed by natural gas (21%) and hydropower (16%).
The environmental impact of bitcoin mining largely hinges on the energy sources utilized. Industry analysts assert that the use of clean energy has been on the rise, aligning with increasing demands for climate protection amid global concerns.
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