What to know about the post-election Bitcoin rally

by Junna Base November 11, 2024

NEW YORK (AP) — As money continues to flow into cryptocurrencies following Donald Trump’s victory last week, Bitcoin has climbed to another record high.

The world’s largest cryptocurrency surpassed $87,000 for the first time on Monday. At around 3:45 p.m. ET, Bitcoin price was at $87,083, up over 28% in the last week alone, according to CoinDesk.

This is part of a rally in cryptocurrencies and crypto-related investments since Trump won the US presidential election last week. Analysts attribute much of the recent gains to an expected “crypto-friendly” nature of the new administration, which could lead to more regulatory clarity but also leeway.

Nevertheless, as with all in the volatile cryptoversethe future is difficult to predict. And while some are optimistic, others continue to warn about investment risks.

Here’s what you need to know:

Back up. What is a cryptocurrency again?

Cryptocurrencies have been around for some time, but in recent years they have come into increasing focus.

Basically: Cryptocurrency is digital money. This type of currency is designed to operate over an online network without a central authority – meaning it is not typically backed by a government or banking institution – and transactions are recorded using a technology called blockchain.

Bitcoin is the largest and oldest cryptocurrency, although other assets such as Ethereum, Tether and Dogecoin have also gained popularity over the years. Some investors view cryptocurrencies as a “digital alternative” to traditional money – however, they can be very volatile and dependent on broader market conditions.

Why are Bitcoin and other crypto assets surging so much now?

A lot of this has to do with the outcome of last week’s election.

Trump was previously a crypto skeptic but changed his mind and hugged Cryptocurrencies during this year’s presidential election campaign. He promised to make the USA the “…” Cryptocapital of the planet” and create a “strategic reserve” of Bitcoin. His campaign accepted cryptocurrency donations and he wooed fans at a Bitcoin conference in July. He also founded World Liberty Financial, a new venture with family members to trade cryptocurrencies.

Crypto industry players welcomed Trump’s victory, hoping he would be able to push through legal and regulatory changes they had long advocated for. And Trump had previously promised that if elected, he would oust Securities and Exchange Commission Chairman Gary Gensler, who has repeatedly led the U.S. government’s crackdown on the crypto industry demanded more control.

“Crypto rallied as Election Day stretched into the night and it became increasingly clear that Trump would emerge victorious,” Citi analysts David Glass and Alex Saunders wrote in a Friday research note, citing broader industry sentiment , that Trump is “crypto-friendly.” and a possible shift in regulatory support.

Even before the post-election rally, assets like Bitcoin were posting notable gains over the past year or so. Much of the credit goes to the early success of a new way of investing in the asset: Explore Bitcoin ETFswhich were approved by US regulators in January.

Inflows into Spot ETFsor exchange-traded funds, “have been the dominant driver of Bitcoin returns for some time, and we expect this relationship to continue in the near term,” Glass and Saunders noted. They added that spot crypto ETFs saw some of their largest inflows ever in the days after the election.

What are the risks?

Crypto assets like Bitcoin have a history of experiencing drastic fluctuations in value – which can occur suddenly and occur over the weekend or overnight when trading takes place around the clock, every day.

In short, history shows that you can lose money just as quickly as you make it. Long-term price behavior depends on larger market conditions.

At the start of the COVID-19 pandemic, Bitcoin was valued at just over $5,000. Its price climbed to nearly $69,000 by November 2021, during a period marked by high demand for technology assets, but later plunged during an aggressive series of interest rate hikes by the Federal Reserve to curb inflation. Then came the year 2022 FTX collapsewhich significantly undermined trust in crypto overall.

At the beginning of last year, a single Bitcoin could be had for less than $17,000. However, investors began return in large numbers as inflation began to cool – and profits surged on the anticipation and early success of spot ETFs. While some crypto advocates see the potential for more record-breaking days, experts are still urging caution, especially for investors on a budget.

“Investors should only invest in cryptocurrencies with money they can expect to lose,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. said last week. “Because we’ve seen these wild swings in the past.”

What about the impact on the climate?

Assets like Bitcoin are created through a process called “mining.” consumes a lot of energy. And operations that rely on pollutant sources have raised particular concerns over the years.

Recent research published by the United Nations University and the journal Earth’s Future found that the 2020-2021 carbon footprint of Bitcoin mining in 76 countries is equivalent to the emissions from burning 84 billion pounds of coal or operating 190 natural gas-fired power plants. Coal met the majority of Bitcoin’s electricity needs (45%), followed by natural gas (21%) and hydropower (16%).

In the USA, the Energy Information Administration Notes that crypto mining across the country “has grown very rapidly in recent years,” adding that grid planners have begun to express concerns about the increase in associated electricity demand. Preliminary estimates from the EIA in February indicate that annual electricity consumption from crypto mining likely accounts for between 0.6% and 2.3% of US electricity consumption.

Environmental Impact of Bitcoin Mining largely depend on the energy source used. Industry analysts claim that the use of clean energy has increased in recent years, coinciding with increasing calls from regulators around the world for climate action.