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Bitcoin hit a record high of about $68,800 on Tuesday, capping a remarkable comeback for the volatile cryptocurrency after its value plunged in 2022 amid a market meltdown.
Bitcoin’s price has risen more than 300 percent since November 2022, a resurgence that few predicted when the price dropped below $20,000 in 2022. Its previous record was just under $68,790 in November 2021, as crypto markets boomed and amateur investors poured savings into experimental digital coins.
“This is just the beginning of this bull market,” said Nathan McCauley, the chief executive of the crypto company Anchorage Digital. “The best is yet to come.”
Bitcoin’s recent surge has been driven by investor enthusiasm for a new financial product tied to the digital coin. In January, U.S. regulators authorized a group of crypto companies and traditional finance firms to offer exchange-traded funds, or E.T.F.s, which track Bitcoin’s price. The funds provide a simple way for people to invest in the crypto markets without directly owning the virtual currency.
As of last week, investors had poured more than $7 billion into the investment products, propelling Bitcoin’s rapid rise, according to Bloomberg Intelligence.
The price of Ether, the second-most-valuable digital currency after Bitcoin, has also risen this year. Its increase has been driven partly by enthusiasm over the prospect that regulators may also approve an E.T.F. tied to Ether.
Despite the euphoria, the crypto industry is still navigating the aftermath of the 2022 crash. Sam Bankman-Fried, the disgraced founder of the collapsed FTX crypto exchange, is set to be sentenced to prison at the end of March. The Securities and Exchange Commission has sued several prominent crypto firms, including the U.S. exchange Coinbase, arguing that the companies offer unregistered securities.
Courts have begun weighing in on some of those lawsuits, and the outcome could determine whether crypto companies can continue operating in the United States. Many skeptics remain unconvinced that digital currencies offer much real-world utility.
“There’s no inherent value,” said John Reed Stark, a former S.E.C. official and an outspoken critic of the crypto industry. “There’s no proven track record of adoption or reliance.”
Bitcoin was invented in the aftermath of the 2008 financial crisis by a mysterious developer using the pseudonym Satoshi Nakamoto. The digital coin was originally envisioned as a decentralized alternative to the traditional financial system, a way for people to exchange funds without relying on banks or other intermediaries.
But as Bitcoin’s value increased, it became a vehicle for financial speculation. The currency’s price rose rapidly, before falling just as quickly — minting new millionaires one day and erasing their savings the next.
In the early part of the pandemic, a surge in day trading by amateur investors helped turn cryptocurrencies into a hot commodity. The industry promoted itself in splashy magazine spreads and Super Bowl commercials, sending Bitcoin’s price soaring to a record.
Within a year, the bubble burst. A series of corporate implosions culminated in November 2022 with the collapse of FTX, Mr. Bankman-Fried’s exchange. Investors lost billions of dollars, as Bitcoin’s price plummeted to around $16,000.
The industry’s fortunes started improving in August, when a federal appeals court paved the way for companies to offer E.T.F.s tied to Bitcoin. An E.T.F. is essentially a basket of assets broken up into shares. Investors buy shares in the basket, rather than owning the assets directly.
In the crypto world, that means investors can gain exposure to Bitcoin without mastering the technical details of a digital currency wallet, or entrusting large amounts of money to fly-by-night firms with checkered legal histories. Financial giants like BlackRock and Fidelity are offering the Bitcoin investment products, providing a measure of stability to a volatile industry.
For years, crypto advocates predicted that the approval of Bitcoin E.T.F.s would bring billions of dollars in new investment to the industry, though some analysts expressed skepticism about those projections.
Early data suggests the impact has been significant. Over recent months, the approval of the investment vehicles has combined with other factors to send Bitcoin’s price surging.
Later this year, the amount of new Bitcoin that goes into circulation will decrease because of an event known as “the halving.” The event, which was programmed into Bitcoin’s underlying code, will reduce by half the amount of Bitcoin that people receive when they run software to validate crypto transactions (a process commonly known as “mining”).
The prospect of scarcer Bitcoin supply has helped drive up its price, some analysts have argued.
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Credit: NYTimes.com