Crypto Fork: Bitcoin Chased a New Record

Digital currencies May break value records, but their long-term future is still in question

The bitcoin exchange rate this week broke the $50,000 mark for the first time since November 2021. Cryptocurrencies continued their rapid growth in 2024, contrary to gloomy predictions. The main reason for this rise is the demand from "mainstream" exchange-traded investment funds. Meanwhile, the fundamental problems of the cryptocurrency — such as the speed of transactions — are still being resolved hard and slowly, and competition with digital currencies of central banks looms on the horizon. Whether speculation alone can explain the rise of the "crypt" and whether it should be considered as a long—term investment is in the material of Izvestia.

Confidently up

Last year was relatively successful for cryptocurrencies and bitcoin in particular. 2023 began at historically low levels — bitcoin was located below $17 thousand. By the end of the year, it reached the $44 thousand mark. Growth, therefore, amounted to more than 150% — one of the best indicators in recent times, even for such a volatile asset. At the beginning of 2024, the upward movement continued, and in February, the psychologically important mark of $50 thousand was closed.

Not all cryptocurrencies have been as successful. For example, Ethereum in 2023, although it also grew noticeably, still added less than 100%. Cardano has barely doubled in size. Despite the fact that these currencies usually fall more strongly, but also grow faster than the relatively more stable bitcoin. Thus, the "revival" in the cryptocurrency market has been very uneven. Nevertheless, it is pointless to deny it — the "crypt" is growing again despite the apocalyptic forecasts of 2022, which often predicted the end of the entire industry. What's happening?

Why is the crypt growing?

First of all, cryptocurrencies have made an important move towards mainstream recognition. In January 2024, the U.S. Securities and Exchange Commission (SEC) for the first time approved the creation of 11 exchange-traded mutual funds (ETFs) that engage in spot trading in "crypto", which opened up a huge market for private digital currencies. Prior to this, ETFs on American exchanges were only engaged in trading cryptocurrencies on the futures market, which was purely niche and did not provide the proper volume.

— The rise in the price of bitcoin, apparently, is associated with the increasingly growing popularity of ETFs, — says Nikolay Dudchenko, an analyst at Finam Financial Group. 
— During the month, the funds raised a total of $2.8 billion. At the moment, the total amount of assets under management of the funds exceeds $28 billion.

According to him, such major investment companies as Blackrock and Fidelity are leading the market, whose funds have raised almost $6.9 billion in a month.

Following America, trading cryptocurrencies through such a popular mechanism among investors as ETFs may soon begin in Hong Kong, and then in other stock markets. In many countries, regulators can also soften the attitude towards the "crypt". The reason is the aggravation of international contradictions and the use of the dollar as a weapon, which encourages the search for independent alternatives as one of the solutions.

The second key factor is the rates of central banks. It was the increase in the base rate of the US Federal Reserve, followed by the ECB, that became the main reason for the collapse of cryptocurrencies in 2022. The lack of virtually free capital, which the markets have become accustomed to, has led to a massive exodus from the most risky and volatile assets. Most of the remaining money eventually accumulated in U.S. government bonds and securities of major corporations.

The situation may change soon — both the Fed, the ECB, and small European banks are signaling their desire to start cutting rates. Inflation has not yet been fully brought under control (in the US and the eurozone it is around 3%), but optimists believe this is possible in the coming months. If the rates decrease, it will dramatically increase the popularity of bitcoin compared to fiat currencies, which lose their purchasing power over time. In contrast, the supply of many cryptocurrencies is limited, meaning their value should grow over time.

According to Alexander Spivakov, director of S+ Consulting, the reason for the increase in the value of bitcoin is predetermined by the peculiarities of the mining procedure, namely the number of bitcoins that can be generated.

— The mining process reached the stage of maturity several years ago, currently a significant release of additional bitcoins is almost impossible. At the same time, the money supply — both in dollars and in other currencies — is constantly growing, so the number of ordinary (fiat) dollars, euros, yuan, rubles, etc. per bitcoin will grow constantly, which means that the price of bitcoin will also increase. Of course, in addition to purely monetary factors, the bitcoin exchange rate is also influenced by market conditions due to the needs of users in using this asset.

Finally, specifically on the price of bitcoin (which is growing faster than most cryptocurrencies) The "halving" procedure expected in April, which will take place in April this year, may be influenced, Nikolai Dudchenko notes. Halving is a halving of the reward for creating a block in the blockchain system. It follows that the supply of bitcoin on the market will decrease, and many of the least efficient miners will be put out of business. All previous halvings led to a fairly serious increase in the cryptocurrency exchange rate, and there is no reason to believe that this time it will be any different.

What to expect from Bitcoin

In the near future, the prospects for bitcoin look pretty rosy. This is also confirmed by exchange contracts. Investors are willing to purchase call options (the opportunity to buy an asset in advance at a specified price) in the amount of $65 thousand, $70 thousand and even $75 thousand for one bitcoin. The historical maximum of the bitcoin exchange rate, reached in 2021, is $69 thousand for comparison. However, if we look at a longer horizon, serious questions remain.

The fundamental problems of the "crypt" have not been solved, the main of which is the speed of transactions. In the case of bitcoin, this is 5 per second. For comparison, payment systems like Visa and Mastercard can provide tens of thousands of transactions per second. In principle, there are no such speeds in blockchain systems. Certain hopes are pinned on the Lightning Network system, which falls on the blockchain as a second layer. However, while its adoption is slow, the weaknesses of this system are also well known and are still far from being resolved. For example, the cost of a transaction has even increased over several years of use. If millions of cryptocurrency owners cannot make payments quickly, cheaply and seamlessly, then crypta will remain a tool for speculation and the black market.

We should not forget about the issue of ecology. Bitcoin mining spends absolutely exorbitant amounts of electricity, comparable to the energy consumption of quite large states. In the future, more and more power will be required, which will obviously affect carbon emissions. Governments concerned about this will take action against mining and the widespread use of bitcoin. Ethereum is another matter: after switching to the proof—of-stake protocol, its energy consumption decreased by almost 100 times. But most digital currencies still use the proven proof-of-work method, which is greedy for electricity - and bitcoin is among that number.

In addition, over the next few years, a number of states will launch their own digital currencies (CBDC), which are also quite capable of taking away part of the market from the decentralized "crypt". In these competitive conditions, bitcoin will be much more difficult than competing with traditional fiat currencies. And the states themselves may become more hostile to uncontrolled sources of emissions. However, this prospect is also rather vague.

— As for the launch of CBDC, this issue remains open at the moment. In particular, Donald Trump, for example, promised to prevent the emergence of the digital dollar if he becomes president again. We do not believe that the gradual introduction of CBDC currently carries risks for bitcoin," Dudchenko said.