![Multiple factors could have contributed to Bitcoin’s price gains this year [File]](https://th-i.thgim.com/public/incoming/r9wlqz/article67920311.ece/alternates/LANDSCAPE_1200/2024-03-05T173539Z_827401100_RC2TF5A97G60_RTRMADP_3_FINTECH-BITCOIN-RALLY.JPG "Multiple factors could have contributed to Bitcoin’s price gains this year [File]")
Story so far: On March 5, Bitcoin, the largest cryptocurrency by market capitalisation, broke its previous price record to hit a new all-time high of $69,170.63, according to the CoinMarketCap live tracker. The last high was $68,789.63, which Bitcoin achieved in November 2021. After this event in 2021, the coin crashed to multi-year lows and the crypto market was battered by company collapses and regulatory hits.
What does the new all-time high price mean for the sector? Will Bitcoin’s price keep rising? And is it a good idea to invest in cryptocurrencies?
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What are the factors behind Bitcoin’s rise in price?
Multiple factors could have contributed to Bitcoin’s price gains this year.
The market is recovering from the shock of Russia’s invasion of Ukraine that started in 2022, as well as the collapse of cryptocurrencies LUNA/UST and the subsequent fall of trading platforms such as FTX that same year.
In addition to a market recovery, the U.S. Securities and Exchange Commission (SEC), known for taking strong legal action against crypto companies, approved the first spot exchange traded funds (ETFs) for Bitcoin. This move told cautious investors as well as financial institutions that the regulatory landscape was perhaps beginning to open up, and it encouraged more traditional investors to explore the world of blockchain-based assets.
According to CoinShares’ Digital Asset Fund Flows weekly report released on Monday, Bitcoin alone saw $1.73 billion in inflows. The total inflows came to $1.84 billion across digital asset investment products in general, showing just how dominant Bitcoin is.
Furthermore, Bitcoin investors and traders are preparing for the Bitcoin Halving event predicted for this April. Many investors and analysts believe this engineered scarcity mechanism will help drive up the price of the cryptocurrency. This sense of expectation and hype usually encourages investors to buy more Bitcoin, and can help push prices up.
What is the Bitcoin Halving?
The Bitcoin Halving takes place about every four years and sees the crypto mining reward cut in half. While this may sound like a loss rather than a cause for price rises, there is more to the process.
Bitcoin miners use advanced computer equipment and enter an energy-intensive race in order to digitally “mine” their coins. This means they get some Bitcoin as a reward for helping the blockchain grow by processing other users’ transactions. While the mining reward is currently 6.25 BTC, this will be halved around April so that fewer coins are introduced into the crypto economy.
Bitcoin has a maximum supply of 21 million BTC, and more than 19 million coins are already in circulation. The halving tightens this process so that the coins will continue to be released at slower and slower rates, likely extending into the next century as well.
The Bitcoin Halving is meant to automatically keep the asset scarce, based on mathematic principles. This is unlike paper money, which can be printed on the basis of human decisions.
What should new crypto investors know?
The dangers of volatility cannot be stressed enough.
New investors who are buying Bitcoin or other blockchain-based assets must know just how quickly they can lose their hard-earned money.
For instance, Bitcoin hit a daily high of $69,170.63 on March 5, while the 24-hour low was $59,323.91 - roughly a $10,000 difference. This means looking away from your device for even just a few minutes can drastically change your fortune.
When Bitcoin reaches new high prices, many speculators usually sell their assets to exit the market with what they have, or they buy the assets at a profit again after prices fall.
What is the market like for the second largest cryptocurrency?
Bitcoin’s market cap is more than $1 trillion this week, making it the leading crypto. Second in line is Ethereum, with a currency called Ether (or ETH for short). However, Ethereum’s market cap was less than $500 billion this week.
While Bitcoin’s origin and founder (or founders) are largely a mystery, Ethereum has a relatively more corporate structure, though developers worldwide are free to participate in its ecosystem that is known for enabling self-executing commands called smart contracts. People can also establish their own crypto tokens using Ethereum’s underlying infrastructure, or build other blockchain services.
Ether used to be digitally mined like Bitcoin, but the platform has switched to the less energy-hungry ‘proof-of-stake’ model as it continues to grow.
Ether prices tend to echo those of Bitcoin, so ETH also enjoyed a lift this week as Bitcoin hit its all-time high. Ether crossed the $3,900 threshold, but it is yet to beat its all-time high price of $4,891.70 from November 16, 2021, as per CoinMarketCap.
- Multiple factors could have contributed to Bitcoin’s price gains this year.
- The Bitcoin Halving takes place about every four years and sees the crypto mining reward cut in half. While this may sound like a loss rather than a cause for price rises, there is more to the process.
- New investors who are buying Bitcoin or other blockchain-based assets must know just how quickly they can lose their hard-earned money.
