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Bitcoin hits new heights - is now a good time to invest? - MONEY WEEK
The value of Bitcoin has surged to a 20-month high. Why is Bitcoin rising and is now a good time to invest?
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The world’s largest cryptocurrency, Bitcoin, surpassed $42k for the first time since May 2022 on Monday 4 December, just as gold prices hit a new record.
Both gold and Bitcoin have seen highs amid expectations that interest rates could be cut.
The digital coin has made its comeback after plummeting to a $4,826 low in 2020 during the pandemic, Bank Rate data shows. Bitcoin is now up by more than 150% since the start of 2023.
“The crypto winter appears to be well and truly over with positive price action coming back into play off the lows around a year ago,” says Victoria Scholar, head of investment at interactive investor.
“However, there is still a long upward climb ahead to retest the pandemic fuelled highs from 2021.”
Currently, Bitcoin is trading around $41,700 up by 10% since last Thursday and a 50% rise in the past six months.
Find out why the value of Bitcoin is rising and if you should invest in the digital currency - or even sell any holdings you have as prices rise. Bitcoin is a high-risk investment, it remains unregulated and highly volatile which means there can be quick and major changes in its price.
WHY IS BITCOIN RISING?
The volatility of cryptocurrency is unsurprising, and whilst several things have contributed to Bitcoin's downfall, the digital coin has staged a recovery from high interest rates and cryptocurrency scandals.
“A combination of growing expectations for regulatory approval for a Bitcoin ETF, a more dovish outlook from the Fed, and the countdown to next year’s Bitcoin halving have provided a trio of tailwinds for the most widely traded cryptocurrency,” Scholar adds.
To control high inflation, the Federal Reserve made aggressive interest rate hikes, and as a result, Bitcoin dipped below $16,000 back in March 2022. But as inflation started to cool, and talks of interest rate cuts started to circulate, investors returned.
Russ Mould, investment director at AJ Bell, says: “Lower real (post inflation) interest rates reduce the opportunity cost of holding the cryptocurrency, which itself yields. Linked to that is dollar weakness, especially if you think about in terms of the dollar going down against Bitcoin, rather than Bitcoin going up in dollars.”
Previous cryptocurrency scandals also played their part. The Bahamas-based cryptocurrency exchange FTX collapsed in November 2022 after the founder faced seven criminal charges relating to his digital asset.
However, the growing confidence that cryptocurrency exchange-traded funds (ETFs) will be approved by the Securities and Exchange Commission (SEC) is now attracting investors to buy Bitcoin.
Mould adds: “The other - bigger, elephant in the room - issue is debt. Government debt continues to grow on both sides of the Atlantic and especially in the USA. That also means interest bills are rocketing as interest rates and bond yields have gone up a lot in 2023 (even allowing for recent drops in Treasury and Gilt yields).
Either way, investors could be forgiven for looking for a store of value, a haven where supply does not grow fast – and Bitcoin might be appeal to some.”
SHOULD I INVEST IN BITCOIN?
Although it is nearly impossible to know where the value of Bitcoin will go, upcoming events could affect its price.
In April 2024, we will see the next Bitcoin ‘halving’ event which happens around every four years, which could be the catalyst to see Bitcoin's value go up. At the event, rewards given to Bitcoin miners are cut in half. It aims to increase the scarcity of the digital coin.
The approval of the Bitcoin ETFs by the SEC could also see a hike in Bitcoin investors, as the coin will be available via major investment providers such as Fidelity, giving access to millions of its customers.
