Markets
Mint Primer: Bitcoin has scaled the $100k peak. Can it crash too?
Summary
- In the early hours of Thursday, Bitcoin proved start-of-year analysts right by hitting an all-time high of $100,000, fuelled by optimism after Donald Trump won the US presidential election. But, there’s a question mark on whether this rally can sustain. Mint explains.
What made bitcoin’s price surge so high?
In January, the US Securities and Exchange Commission (SEC) boosted bitcoin by approving exchange-traded funds. Bitcoin had already risen to over $40,000 from $16,500 at the start of 2023, in anticipation of this. ETFs enabled institutional investors to hold bitcoin, giving it substantial backing as an asset. As brokerages invested, bitcoin rose to $75,000 by June. But, selling by large wallets dragged it down to nearly $50,000 in September. Trump, a bitcoin investor, sparked a rally again by winning the election. The nomination of Paul Atkins, a crypto advocate, to lead the SEC, took the price past $100,000.
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How long can the rally sustain itself?
Most stakeholders expect cryptocurrencies to continue rising in value, if the US-fuelled euphoria sustains. In fact, many analysts, including critical ones such as the US-based Alex Dobvnya, have said that bitcoin, with a market cap of $2.02 trillion at the time of publishing this story, is now “too big to fail". The bellwether crypto token can also impact other tokens positively, leading to cryptocurrencies growing bigger still. Many have called it to be on the verge of “mainstream" adoption, although such claims are not true yet. In the near term, though, everyone expects bitcoin to rise further.
Are other crypto tokens benefiting too?
Ethereum’s ETH has risen 70% since January, and is close to its 52-week high at $3,863. Ripple’s XRP, the fourth-largest with a market cap of $135 billion, has risen 3.8x this year. Solana (SOL), the next-biggest with a market cap of $111 billion, has risen 2.5x. Each of the world’s top 10 crypto tokens has risen 2–4x this year, qualifying 2024 as a “bull" year for it.
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So why the concerns of a crash?
Critics of cryptocurrencies have warned that while blockchain has concrete real-world use cases, the same isn’t true of tokens—which aren’t tied to any physical asset, making them volatile. Crypto “whales", or wallets with tokens worth over $1 million, can badly impact any token at any time if they are liquidated. And in an economic downturn, brokerages may sell, as in 2022, when bitcoin crashed by over 4x in a year. Despite being bigger today, adverse global policy calls beyond Trump may also hamper crypto.
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What do pro-crypto calls mean for India?
Even as exchanges see some user uptick in India, the return isn’t substantial enough for exchanges to revisit their highs from late 2021. This is because of India’s heavy tax rates, the lack of a policy, and financial heads being vocally against crypto. While Trump could impact some tech policies in India, crypto may not be on the priority list as US exchanges aren’t big in India, and the consumer market, too, is limited due to the tax. This could mean that crypto’s rise may also only have a limited benefit for Indian users.
