Bitcoin: what has caused the cryptocurrency’s latest revival?

Bitcoin, the cornerstone of the cryptocurrency market, has reached a new record value more than two years after its previous peak. On Tuesday, the digital asset passed its previous peak from November 2021 of just under $69,000, although it later eased back to a little above $64,000.
Bitcoin is now worth about $1.3tn, a substantial chunk of the total $2.6tn cryptocurrency market. Here are the factors behind its latest revival.

What is bitcoin?

Bitcoin was created in 2008 by Satoshi Nakamoto, the pseudonymous author of a white paper that established the concept of a digital currency that allows “online payments to be sent directly from one party to another without going through a financial institution”.
The “double spend” problem of someone duplicating or falsifying a digital token – which cannot be prevented by a separate institution policing the system, because that would go against the underlying principles of bitcoin – is solved by having transactions recorded on a universally accessible ledger called a blockchain.
This is all secured by cryptography, where transactions are protected by a form of encryption called public-private key encryption. This enables a transaction to take place without a financial institution sitting in the middle of it.
Transactions are placed on the blockchain by bitcoin “miners”, who get to pack them into blocks that are linked (or “chained”) together, by solving a cryptographic puzzle using specialised hardware. These miners are rewarded with newly created bitcoins.

Why has bitcoin been so popular?

A key aspect of bitcoin’s appeal is its anti-authoritarian stance – the ability to carry out financial transactions without a financial institution overseeing the process and charging fees. Tim Swanson, a cryptocurrency industry commentator, has described it as “censorship-resistant digital cash”.
It has also benefited from a low-interest-rate environment – a longstanding economic trend since the 2008 financial crisis – that has pushed some investors towards riskier assets, such as cryptocurrencies, in pursuit of better financial returns. It has also been viewed as an “inflation hedge”, like gold, meaning that it cannot be devalued by a central bank printing more of it, because bitcoin is designed to have a finite number of units in issue – 21m to be exact.
Carol Alexander, professor of finance at the University of Sussex business school, argues that people are mistaken to view bitcoin as a gold-like safe haven from market volatility and inflation.
“Like gold, bitcoin has been viewed as ‘uncorrelated’ with stock markets, but it is far too volatile an asset to be considered like that,” she says.
And, obviously, its performance at various points in its short existence – its price rose 70% alone in May 2017, for instance – has also drawn in people attracted to the publicity around its at-times outsize returns.

Why has it risen in price this time?

A major factor in bitcoin’s rise since the start of the year has been the approval by the US financial regulator in January of exchange-traded funds [ETFs] – a basket of assets that can be bought and sold like shares on an exchange – that track the price of bitcoin.