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 the 2022 industry downturn that drove many major companies into bankruptcy and damaged crypto’s reputation.
But is crypto really coming back from the dead? While the numbers suggest the industry is starting to grow again, there are significant differences between this rally and the euphoria that drove cryptocurrency prices to previous highs.
Here’s what you need to know about the new crypto wave.
Why have cryptocurrencies crashed in the past?
The last time Bitcoin set a record was November 2021, as cryptocurrencies became a cultural phenomenon. Crypto executives hung out with celebrities and their companies ran giant marketing campaigns with Super Bowl ads.
Prices crashed in the spring of 2022 as some of the most prominent crypto companies were exposed as scams. People who had poured their savings into crypto lost everything. The decline peaked 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 on a tear. After hitting lows around $16,000 after the FTX collapse, the virtual currency’s price has soared to $69,000.
How did Bitcoin recover?
A major turning point for the crypto industry came in August, when a court ruling cleared the way for financial firms to offer new investment products tied to the price of Bitcoin. The products, called exchange-traded funds, or ETFs, gave investors a way to dabble in cryptocurrencies without owning them directly.
In essence, an ETF is a basket of assets, divided into stocks. Investors buy the shares, not the assets themselves. The introduction of Bitcoin ETFs meant that cautious investors could dip their toes into the crypto markets without having to worry about setting up a digital wallet or entrusting savings to a dubious startup.
The impact was immediate. Since the ETFs hit the market in January, more than $7.5 billion in investment has flowed into them, pushing the price of Bitcoin higher.
What’s different about this wave?
When crypto boomed in 2021, its rise was fueled at least in part by ordinary investors, banded together during the pandemic, who turned to online investing as a new hobby. They bought so-called memecoins, which are cryptocurrencies based on internet jokes, and stored their digital savings in fledgling crypto banks with sketchy business models. Non-fungible tokens, the crypto-based collectibles known as NFTs, also rose in price.
This time, Bitcoin leads the way. Other tokens have also increased in value, but without reaching their previous heights (although there has been some renewed interest in memecoins). And Bitcoin’s evolution is due to the support of major financial institutions such as BlackRock and Fidelity, both of which offer Bitcoin ETFs
“It’s definitely very different” from 2021, said Michael Anderson, founder of crypto investment firm Framework Ventures. “This is likely to be an institutionally driven cycle.”
So is crypto really making a comeback?
Crypto boosters insist Bitcoin’s rise is only the beginning. They envision months of significant gains that could send the price of the cryptocurrency to $100,000.
Even if they’re right, that doesn’t necessarily mean the wider industry will flourish. Federal regulators have more or less come to terms with the fact that people trade Bitcoin in the United States. But they have been hostile towards other digital currencies and the platforms that offer them.
The Securities and Exchange Commission has filed lawsuits against Coinbase, the largest US exchange, and several other large companies. The results of these cases, which are still pending before the courts, could determine whether crypto can continue to grow in the United States.
“This industry moves in cycles,” said John Todaro, a crypto analyst at Needham. “I don’t know if it’s going to go back to the levels we saw in 2021 because there are checks and balances in play now.”
