Why Bitcoin Is Booming All of a Sudden

Bitcoin prices surged in February. By the afternoon of Friday, March 1, Bitcoin was trading at about $62,000, edging ever closer to the all-time high of more than $68,000 that it hit in November 2021.

What’s driving the boom? In January, the Securities Exchange Commission allowed financial institutions to offer spot Bitcoin exchange-traded funds (ETFs). The ETFs are essentially securities pegged to the value of Bitcoin, and they can be bought and sold directly through a regular brokerage account. Investors no longer need to set up cryptocurrency wallets and navigate unfamiliar exchanges to dabble in crypto.

The ETFs, which are offered by traditional asset managers like Fidelity and BlackRock as well as crypto-focused firms like Grayscale, appear to be a hit. According to Bloomberg, the new funds brought in more than $7 billion in net inflows since they became available on January 11.

Bloomberg also reported this week that Bank of America and Merrill will allow customers to purchase the ETFs through their platforms. Vanguard is a notable holdout, stating in January it would not create its own Bitcoin ETFs or allow its customers to invest in other companies’ offerings through its investing platform because of the volatility of Bitcoin prices.

Analysts had been expecting a rebound, as crypto companies move on from the scandals and crackdowns of the past year and a half. The industry suffered when Sam Bankman-Fried’s cryptocurrency exchange FTX collapsed in November 2022 amid charges it was misusing customer funds. That news sent Bitcoin prices crashing to less than $16,000. Now, Bankman-Fried awaits sentencing on multiple counts of fraud, and it’s looking increasingly likely all of FTX’s customers will be repaid.

Another factor that may be driving the rally is what’s known as Bitcoin’s “halving,” which is expected to happen in April. It works sort of like this: New coins are minted through a process called mining, in which computers solve complex calculations to verify Bitcoin transactions and record them on the blockchain. The people who run those computers (miners) get a little bit of Bitcoin for their trouble. But over time, as specified in the original code, the amount that miners get is cut in half. That usually causes Bitcoin’s value to rise.

Ether, another well-established cryptocurrency, also had a strong February, up more than 47 percent, according to CNBC. Stablecoins, cryptocurrencies that are pegged to the US dollar, have also become increasingly popular as a store of value, particularly in countries such as Argentina that are facing high inflation or extreme currency fluctuations.

Despite the current boom, experts warn crypto investing isn’t for everyone. Cryptocurrency prices can be extremely volatile, and the new and still largely unregulated industry can be particularly vulnerable to shocks and scandals.