The oldest and most well-known digital currency, Bitcoin, surged dramatically early this week, reaching over $80,000 on exchanges. This is the highest value Bitcoin has ever reached. But what’s behind this rise?
One decisive factor is the election of Donald Trump as the new U.S. President. Since November 4th, Bitcoin has been increasing steadily.
“Donald Trump has declared that he will be the ‘President of Cryptocurrency’ and that the U.S. will play a leading role in the Bitcoin sector,” says Jonas Gross, the chairman of the Digital Euro Association, an organization that focuses on digital payment systems.
Such promises have been made only by presidents of countries like El Salvador. Therefore, it is no surprise that the Bitcoin community is now excited.
Although Trump previously expressed negative views on Bitcoin during his first presidential term, he made a U-turn ahead of the 2024 elections. For example, at a major Bitcoin conference in Nashville, he promised that he would continue to leave the cryptocurrency market unregulated and would work towards providing cheap energy for Bitcoin mining.
The production of new Bitcoins (mining) and the maintenance of the network through which transactions are recorded (blockchain) requires a large amount of energy. New Bitcoins are generated as a computer solves complex computational tasks, which requires significant computational power and, consequently, a lot of energy.
A New Step for Bitcoin
Co-Pierre Georg, the director of the Blockchain Center at the School of Finance and Management in Frankfurt, believes that Bitcoin’s price increase is mainly due to “structural reasons that were reinforced by the U.S. elections.” Georg refers to the licenses granted in January for Bitcoin ETFs, which have made Bitcoin investments significantly easier.
An ETF, or Exchange-Traded Fund, is an investment fund that tracks the price of assets, such as stocks or Bitcoin. With a Bitcoin ETF, the fund buys Bitcoin, and investors purchase shares in the fund to gain exposure to Bitcoin’s price changes without having to buy Bitcoin directly.
Since then, significant amounts of money have flowed into Bitcoin through these ETFs, says Blockchain expert Georg. This means that mainly institutional investors, such as BlackRock, the world’s largest asset manager, have invested in Bitcoin. However, there has been no substantial increase in interest on cryptocurrency exchanges like Coinbase, Bitpanda, or Kraken.
According to Jonas Groß, this record surge is mainly driven by market sentiment and confidence, similar to other markets. Over the last decade, the industry has been in the spotlight for fraud cases. “Therefore, there needed to be a reason to recover its image and get the machine moving again.” Trump’s promise has now given Bitcoin a positive boost.
One of Bitcoin’s main opponents has been Gary Gensler, the head of the U.S. Securities and Exchange Commission (SEC). He has called for regulating the digital currency market. Now, it is expected that Donald Trump will attempt to restructure this institution, creating obstacles for Gensler. Although Gensler cannot be replaced, there will likely be efforts to target him for mistakes.
The director of the Blockchain-Center sees Trump’s victory as a win for the Bitcoin lobby. “It now seems that the crypto industry has bought influence over the government and the new Congress.” This refers to figures like Tesla CEO Elon Musk, who prefers Bitcoin and has heavily supported Trump’s campaign. Many other politicians who have been supported by the crypto sector are also in this circle.
According to Reuters, nearly $120 million from the crypto industry was funneled into Trump’s campaign.
Previously, Bitcoin’s price increases were often attributed to major companies accepting cryptocurrency as a form of payment, such as PayPal in 2020. “At the moment, I don’t see such reasons,” says Georg. “Bitcoin is entirely unsuitable for payment circulation, and it cannot be a stable store of value either. The only reason to buy Bitcoin is speculative.”
Jonas Groß from the Digital Euro Association believes there are now fundamental factors supporting Bitcoin. “Bitcoin has been established as a new asset class. Pension funds and other institutional investors are starting to invest, and I think it’s just a matter of time before we see the first government-backed funds. When that happens, we’ll be dealing with a completely different level of parameters.”
However, any investment in Bitcoin is risky, and markets with high prices have now overvalued Trump’s promises. “If he doesn’t keep his promise, the prices will naturally drop again.”
“For Bitcoin, the rule has always been: only invest what you are willing to lose completely,” says Pierre Georg. As for predicting Trump’s actions towards Bitcoin, “It’s like reading tea leaves.”
