how to explain the recent surge in the price of cryptocurrency, which reached a new record at more than $70,000?

The value of this digital asset plummeted in 2022 after several financial scandals. It has since recovered, notably thanks to new ways of betting on its price.

The dean of cryptocurrencies has returned from the dead. The exchange price of bitcoin reached a new record on the financial markets on Friday March 8, briefly exceeding 70,000 dollars (more than 63,900 euros), according to the media Coindesk. The exact value, however, varies depending on the exchange platform used, but it is a historic level, the previous mark dating from November 2021.

This is a symbolic step after a positive year. The price of the crypto-asset compensated for the fall recorded at the end of 2021 and 2022, in a difficult economic context, marked by multiple bankruptcies and financial scandals which shook the sector. How can we explain this return to favor with buyers? Franceinfo lists several elements of response.

New funds to bet on the price of bitcoin

The launch of new financial products, which allow you to bet on the price of cryptocurrency without directly holding it, constitutes one of the main reasons for this surge in bitcoin. In January, the regulator of American financial markets, the SEC, authorized the creation of a new investment fund called “ETF” (pure “Exchange Traded Fund”) and designed as a tracker to follow the evolution of the price of a digital asset. If the price of bitcoin rises, the value of an ETF share must also rise, and vice versa if it falls.

And to follow the price of this digital asset, funds must buy or sell it, which therefore contributes to the demand for bitcoins. Since their launch, bitcoin ETFs like that of the world’s largest asset manager, BlackRock, have accumulated “assets that represent more than 3% of all existing bitcoins”notes Simon Peters, analyst at eToro, to AFP.

An investor can therefore bet on the price of bitcoin without directly holding it, and thus avoid all the complexity (real or perceived) of managing a digital portfolio, trading on dedicated platforms, transaction fees, etc. Bitcoin thus becomes a classic financial product, which makes it more attractive for investors who would like to take less risk, in particular “institutional investors” (pension funds or insurance companies, for example). For cryptocurrency backers, the approval is a sign that bitcoin will be more widely used in the future, further boosting enthusiasm in the markets.

The “halving”, a technical event which will make the creation of bitcoins rarer

Speculators are also betting on a rise in the price of bitcoin because less and less will be issued. In April there must be a “halving” (“halving” in English), a technical change due to the programming of the technology on which bitcoin is based: the famous “blockchain”.

The bitcoin infrastructure relies on “miners”, actors who serve to maintain the record of transactions between owners of this crypto-asset. To ensure the validity of exchanges and add a “block” to the chain of transactions, their computers must solve very complex calculations – and the miner who succeeds receives bitcoins as a reward.

This reward is halved every 210,000 blocks, which happens approximately every four years. Each “halving” has so far been followed by a rise in prices (partly self-sustained by speculators fearing missing an opportunity). The total of available bitcoins therefore does not decrease, but the event reminds us that the source is “drying up” little by little.

A global return of confidence to the markets

This increase in the valuation of the famous cryptocurrency is also due to a positive global context. The main global stock indices have also recorded gains in recent months and, historically, the price movement of bitcoin often goes hand in hand with these indices.

The scandals and massive frauds, which brought down major players in cryptocurrencies (such as the FTX platform) and attracted strong media attention in 2022, are now more distant memories. In the eyes of some, the sector, freed from these bad examples, is today healthier, even if fraud, technical problems and hacking are still legion, as evidenced by the review site Web3 is Going Just Great.

But, as with any financial asset, there is no guarantee that this price increase will continue. In 2017, a previous cycle of frenzied enthusiasm had already been followed by a collapse in the price. “Buying in the wake of a price spike is rarely a good idea”estimates to AFP an analyst from the AJ Bell investment platform, who recalls that “Previous episodes have shown that those who enter as the frenzy reaches its peak suffer extreme losses”.

After having exceeded its previous record on Tuesday March 5, the price of bitcoin plunged by several thousand dollars on Tuesday (returning for a time below the symbolic threshold of $60,000), before rising again, again according to Coindesk. A simple correction which can be linked to several factors (profit taking, lack of liquidity, technical problem, etc.) but which once again recalls the very high volatility of the most famous of cryptocurrencies.