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What to know about Bitcoin's record in the latest cryptocurrency surge

by SuperiorInvest

Cryptocurrency enthusiasts celebrated on Tuesday, as the price of Bitcoin hit a record high of over $69,000. For believers, it was a moment of vindication after an industry downturn in 2022 that bankrupted several major companies and tarnished the reputation of cryptocurrencies.

But have cryptocurrencies really come back from the dead? While the numbers suggest the industry is starting to prosper again, there are big differences between this bull run and the euphoria that drove cryptocurrency prices to previous highs.

Here's what you should know about the new rise of cryptocurrencies.

The last time Bitcoin hit a record high was in November 2021, when cryptocurrencies became a cultural phenomenon. Cryptocurrency executives hung out with celebrities and their companies ran massive marketing campaigns with Super Bowl commercials.

Prices plummeted in spring 2022 as some of the most prominent crypto companies were exposed as frauds. People who had invested their savings in cryptocurrencies lost everything. The crash culminated in November 2022, when crypto exchange FTX, founded by Sam Bankman-Fried, collapsed after the equivalent of a bank run, costing customers $8 billion.

Since then, Bitcoin has been booming. After hitting a low of around $16,000 following the implosion of FTX, the price of the virtual currency has skyrocketed to $69,000.

A major turning point for the crypto industry occurred in August, when a court ruling paved the way for financial companies to offer new investment products tied to the price of Bitcoin. The products, called exchange-traded funds or ETFs, gave investors a way to get into cryptocurrencies without owning them directly.

Essentially, an ETF is a basket of assets divided into stocks. Investors buy the shares, rather than the assets themselves. The introduction of Bitcoin ETFs meant that cautious investors could dive into the cryptocurrency markets without having to worry about setting up a digital wallet or trusting their savings to a dodgy-looking startup.

The impact was immediate. Since ETFs hit the market in January, more than $7.5 billion has been invested in them, driving up the price of Bitcoin.

When cryptocurrencies boomed in 2021, their rise was fueled, at least in part, by everyday investors, locked down during the pandemic, who turned to online investing as a new hobby. They bought so-called memecoins, which are cryptocurrencies based on online jokes, and stored their digital savings in novel crypto banks with sketchy business models. Non-fungible tokens, the cryptocurrency-based collectibles known as NFTs, also rose in price.

This time, Bitcoin is leading the way. Other tokens have also increased in value, but without reaching their previous highs (although there has been renewed interest in memecoins). And Bitcoin's advance has been fueled by support from major financial institutions like BlackRock and Fidelity, which offer Bitcoin ETFs.

“It's definitely very different” from 2021, said Michael Anderson, founder of cryptocurrency investment firm Framework Ventures. “It is possible that this is an institutionally led cycle.”

Cryptocurrency boosters insist that Bitcoin's rise is just the beginning. They anticipate months of significant gains that could push the cryptocurrency's price above $100,000.

Even if they were right, that doesn't necessarily mean the industry as a whole will prosper. Federal regulators have more or less made peace with the fact that people trade Bitcoin in the United States. But they have been hostile toward other digital currencies and the platforms that offer them.

The Securities and Exchange Commission has filed lawsuits against Coinbase, the largest exchange in the US, and several other large companies. The results of those cases, still pending in court, could determine whether cryptocurrencies can continue to grow in the United States.

“This industry moves in cycles,” said Needham crypto analyst John Todaro. “I don't know if it will return to the levels we saw in 2021, because there are checks and balances in play now.”

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