NEW YORK (AP) — Bitcoin topped $98,000 for the first time on Thursday, extending a streak of record after record since the U.S. presidential election. The cryptocurrency has soared more than 40% in just two weeks.
Today, bitcoin is on the verge of $100,000, just two years after falling below $17,000 following the collapse of crypto exchange FTX. The recent dramatic rally comes as industry players expect the new Trump administration to take a more “crypto-friendly” approach to regulating digital currency.
Bitcoin traded as high as $98,349 early Thursday, according to CoinDesk, and was slightly below that level as of 1:25 p.m. ET.
As with everything in the volatile cryptoverse, the future is impossible to know. And while some are optimistic, other experts continue to warn of investment risks.
Here’s what you need to know.
Backup. What is cryptocurrency anyway?
Cryptocurrency has been around for a while now. But chances are you’ve been hearing about it more and more in recent years.
Simply put, cryptocurrency is digital money. This type of currency is designed to operate through an online network without a central authority – meaning it is generally not backed by any government or banking institution – and transactions are recorded using a technology called blockchain .
Bitcoin is the largest and oldest cryptocurrency, although other assets like Ethereum, Tether and dogecoin have also gained popularity over the years. Some investors view cryptocurrency as a “digital alternative” to traditional money – but it can be very volatile, with its price dependent on broader market conditions.
Why is Bitcoin soaring?
Much of the recent action is linked to the outcome of the US presidential election.
Crypto industry players welcomed Trump’s victory, hoping that he would be able to push through the legislative and regulatory changes they have long been calling for – which, broadly speaking, are aimed at an increased sense of legitimacy without too much bureaucracy.
Trump, who was once a crypto skeptic, recently pledged to ensure that the U.S. “the crypto capital of the planet” and create a “strategic reserve” of bitcoin. His campaign accepted cryptocurrency donations, and he courted fans at a Bitcoin conference in July. He also launched World Liberty Financial, a new company with members of his family to trade cryptocurrencies.
How this will actually play out – and whether or not Trump will quickly deliver on his promises – remains to be seen.
“It’s not necessarily a short-term story, it’s probably a much longer-term story,” David Glass, Citi’s macro strategist, told the Associated Press last week. “And there is the question of how quickly U.S. crypto policy can have a serious impact on (wider adoption).”
Adam Morgan McCarthy, research analyst at Kaiko, thinks the industry is hungry for “just some kind of clarity”. In the past, much of the approach to crypto regulation was “enforcement-based,” he notes, which helped weed out some bad actors – but the legislation could close other gaps keys.
Gary Gensler, who as head of the Securities and Exchange Commission under President Joe Biden led the US government’s crackdown on the crypto industry, has penalized a number of crypto companies for violating laws on securities. Gensler announced Thursday that he will step down as SEC chairman on Jan. 20, Inauguration Day.
Despite recent crypto enthusiasm around Trump, McCarthy said 2024 has already been an “extremely important year for regulation in the United States” – pointing to, for example, the January approval of spot bitcoin ETFs, which marks a new way of investing in assets.
Spot ETFs have been the dominant driver of bitcoin for some time now – but, like much of crypto’s recent momentum, they saw record inflows after the election. According to KaikoBitcoin ETFs saw $6 billion in trading volume in the week of the election alone.
In April, bitcoin also experienced its fourth “halving” – a pre-programmed event that impacts production by halving the reward for mining, or creating new bitcoin. In theory, if demand remains strong, some analysts say this “supply shock” can also help propel prices in the long term. Others note that it may be too early to tell.
What are the risks?
History shows that you can lose money in crypto just as quickly as you made it. Long-term price behavior is based on broader market conditions. Exchanges continue at all hours, every day.
At the start of the COVID-19 pandemic, bitcoin stood at just over $5,000. Its price rose to nearly $69,000 in November 2021, during a period of high demand for tech assets, but then collapsed during an aggressive round of rate hikes from the Federal Reserve. And in late 2022, the collapse of FTX significantly undermined confidence in crypto as a whole, with bitcoin falling below $17,000.
Investors began returning in large numbers as inflation began to ease – and gains soared on the anticipation and then early success of cash ETFs. But experts still stress caution, especially for investors with smaller pockets. And lighter regulations from the incoming Trump administration could mean fewer safeguards.
While this is an important month for crypto – and particularly for bitcoin, which McCarthy said has set records in ten of the last 21 days – there is still a risk of a “correction” or seeing the price drop somewhat. Some assets may also be subject to more restrictions than others.
“I would say, keep it simple. And don’t take more risks than you can afford,” McCarthy said, adding that there is no “magic ball” to know for sure what comes next.
What about the climate impact?
Assets like Bitcoin are produced through a process called “mining,” which uses a lot of energy. Operations dependent on polluting sources have caused particular concern over the years.
A recent study published by the United Nations University and the journal Earth’s Future found that the carbon footprint of Bitcoin mining in 2020-2021 in 76 countries was equivalent to emissions from burning 84 billion pounds coal or the operation of 190 natural gas power plants. Coal met the bulk of bitcoin’s electricity demand (45%), followed by natural gas (21%) and hydropower (16%).
The environmental impacts of bitcoin mining largely depend on the energy source used. Industry analysts say the use of clean energy has increased in recent years, coinciding with growing calls for climate protection.
