Not tied to any real currencies, legally in the gray area, subject to high fluctuations as objects of speculation, a breeding ground for money laundering and other illegal activities: This is how cryptocurrencies have often been seen in the financial world in recent years.
But the picture has changed. On Friday evening, the price of the oldest and best-known cryptocurrency Bitcoin climbed to more than 70,000 US dollars (around 64,000 euros) for the first time. There has been an increase of more than 60 percent since the beginning of the year. The prices of other cryptocurrencies also rose in the wake. These are the reasons for Bitcoin’s all-time high:
Bitcoin-Fonds (ETF): In mid-January, the US securities regulator approved Bitcoin exchange-traded funds. This made it easier for investors to get started and was considered a milestone in the industry. ETFs are usually used to replicate the development of a stock market index. With these funds, fund providers purchase their Bitcoin holdings for their own account. Investors then do not receive the cryptocurrency itself, but rather a certificate certifying their claim to it. Demand increased, especially from institutional investors. Financially strong US pension funds, for example, are investing in the industry.
General mood: According to analysts, the general attitude towards cryptocurrencies is positive. Small investors invest in the market – in combination with other asset classes. In addition, the industry has been through a low, which culminated in the bankruptcy of the second largest crypto trading platform FTX in November 2022 and total losses for investors. Since then, things have been going uphill, with the usual zigzag course for Bitcoin. And because central banks are hesitant to cut interest rates, investors are taking on greater risk.
Halving: A Bitcoin halving occurs at regular intervals of around four years. The background is that new Bitcoin only enters the market through the provision of energy in the form of computing capacity. So-called “miners” provide this capacity – and receive a reward in the form of Bitcoin. With the halving, the reward for Bitcoin transactions is halved, the next halving is expected to take place on April 20th or 21st. A shortage of supply drives up the price as demand increases.
Where will the course head next? Experts see this as ambivalent. Some predict a rise to up to $100,000, others warn of a correction. The difference from previous price rallies like the one at the end of 2021 is that the industry is becoming more professional, says analyst Timo Emden. “There are obviously fewer short-term speculators in the market who are looking for quick profits.”
Currently, trading in cryptocurrencies mostly takes place via barely regulated online platforms where customers can invest with just a few clicks. Deutsche Börse wants to compete with the top dogs: last week it presented its own platform including trading and processing of crypto transactions and storage of digital money.
Author
Martin Roithner
Economics editor
Martin Roithner
