Bitcoin has staged a resurgence in recent days, rising above $52,000 for the first time in more than two years.
The flagship cryptocurrency was down a little bit on Friday morning to about $51,800, although it is up more than 7.2% from just five days ago. Since the start of the new year, bitcoin has grown more than 17% in value. It is now the highest it has been since the end of 2021, shortly after it broke its all-time high.
The rally builds upon what was a very solid 2023 for the digital asset space. Over the past year, bitcoin investors have seen gains in excess of 120% — meaning their investments far outpaced traditional assets such as stocks.
Notably, this week, bitcoin’s market capitalization also eclipsed $1 trillion for the first time since late 2021. As of Friday, the cryptocurrency’s market cap (or the value of all bitcoin in circulation) was at $1.021 trillion, according to CoinMarketCap.
Other cryptocurrencies have risen this week alongside bitcoin.
Ethereum, the second-largest cryptocurrency by market cap, was more than 11% in the past five days to nearly $2,800. Over the past six months, the price of ether, which is commonly used in online sales of non-fungible tokens, was up some 54%.
Curiously, bitcoin had been rising in the expectation that the Federal Reserve will soon begin cutting interest rates, although the resilience of inflation in recent reports has led to a sense that rate cuts might be delayed further.
There was also some growth attributable to the Securities and Exchange Commission’s approval of 11 spot bitcoin exchange-traded funds, although bitcoin didn’t rise enormously once those were approved, likely because investors had already priced in that conclusion.
Mark Hamrick, Bankrate’s senior economic analyst, told the Washington Examiner he thinks that some of the momentum bitcoin is seeing is coming from those who are willing to take on some risk. Hamrick noted that Bankrate regards bitcoin as a highly speculative asset that investors should only be investing as much money as they are willing to lose.
“I think, in this environment, it’s more reflective for an appetite for risk and in my mind — and I think in the minds of many others — there are few things that have more risk associated with them than cryptocurrency,” he said.
Hamrick noted that sometimes bitcoin rises in tandem with traditional asset classes such as stocks, which have been up over the past few weeks and months in anticipation of the Fed cutting rates.
For instance, the S&P 500 is up more than 5.5% over the past month and has risen a noteworthy 14% over the past six months. The tech-heavy Nasdaq is also up 6.2% in the past month and nearly 18% over the past six months.
Some of the recent rallying could also be underlying anticipation for something known as “halving.” The bitcoin halving is an event that is expected to take place sometime in April, and it could be good news for bitcoin and other cryptocurrencies throughout the year.
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To mine for bitcoin, high-powered computers are used to verify virtual coin transactions. Bitcoin operates on what is known as a blockchain, essentially a public ledger that contains the history of every transaction. The miners’ computers solve complicated math problems in order to add new blocks to the chain and are, in turn, rewarded with the digital token, making the endeavor profitable.
The way bitcoin was designed, about every four years, the block rewards for bitcoin miners get slashed in half, reducing the supply of new bitcoins by 50%. That makes the product a scarcer commodity and tends to raise the price in the following months.