What to know about Bitcoin’s post-election rally

NEW YORK (AP) – As money continues to pour into crypto following Donald Trump’s victory last week, bitcoin has surged to another record high.

The world’s largest cryptocurrency topped $87,000 for the first time on Monday. From around At 3:45 PM ET, bitcoin’s price stood at $87,083 per CoinDesk, up over 28% in the last week alone.

It’s part of a rally across cryptocurrencies and crypto-related investments since Trump won the US presidential election last week. Analysts credit much of the recent gains to the expected “crypto-friendly” nature of the incoming administration, which could translate into more regulatory clarity, but also leeway.

Still, as with all in the volatile cryptoversethe future is difficult to predict. And while some are bullish, others continue to warn of investment risks.

Here’s what you need to know.

Backup. What is cryptocurrency again?

Cryptocurrency has been around for a while now, but has been seen coming into the spotlight in recent years.

In basic terms, cryptocurrency is digital money. This form of currency is designed to operate through an online network without a central authority – meaning it is typically not backed by any government or banking institution – and transactions are recorded using technology called a blockchain.

Bitcoin is the largest and oldest cryptocurrency, although other assets such as Ethereum, Tether and Dogecoin have gained popularity over the years. Some investors see cryptocurrency as a “digital alternative” to traditional money – but it can be highly volatile and dependent on larger market conditions.

Why are bitcoin and other cryptoassets skyrocketing now?

Much of that has to do with the outcome of last week’s election.

Trump was formerly a crypto-skeptic, but changed his mind and embraced cryptocurrencies during this year’s presidential race. He has promised to make the United States “the crypto capital of the planet” and create a “strategic reserve” of bitcoin. His campaign accepted cryptocurrency donations, and he courted fans at a bitcoin conference in July. He also launched World Liberty Financial, a new venture with family members to trade cryptocurrencies.

Crypto industry players welcomed Trump’s victory, hoping he would be able to push through legislative and regulatory changes they have long lobbied for. And Trump had previously promised that, if elected, he would remove Securities and Exchange Commission Chairman Gary Gensler, who has led the US government’s crackdown on the crypto industry and repeatedly called for more oversight.

“Crypto rallied as Election Day progressed into the night and as it became increasingly clear that Trump would win,” Citi analysts David Glass and Alex Saunders wrote in a research note on Friday, pointing to broader industry sentiment around Trump was “crypto friendly” and a potential shift in legislative support.

Even before the post-election rally, assets like bitcoin had notable gains over the past year or so. Much of the credit goes to the early success of a new way of investing in the asset: spot bitcoin ETFswhich was approved by US regulators in January.

Flowing in spot ETFsor exchange-traded funds, “have been the dominant driver of Bitcoin returns for some time, and we expect this relationship to continue in the near term,” Glass and Saunders noted. They added that spot crypto ETFs saw some of their biggest inflows on record in the days following the election.

What are the risks?

Crypto assets like bitcoin have a history of drastic swings in value – which can come suddenly and happen over the weekend or overnight in trading that goes on at all hours, every day.

In short, history shows that you can lose money as quickly as you make it. Long-term price behavior depends on larger market conditions.

At the start of the COVID-19 pandemic, bitcoin stood at just over $5,000. Its price rose to nearly $69,000 in November 2021, at a time of high demand for technology assets, but later crashed amid an aggressive series of Federal Reserve rate hikes aimed at curbing inflation. Then came 2022 collapse of FTXwhich significantly undermined confidence in crypto in general.

At the start of last year, a single bitcoin could be had for less than $17,000. However, the investors began returns in large numbers as inflation began to slow — and gains soared on the anticipation and then early success of spot ETFs. While some crypto supporters see the potential for more record-breaking days, experts still stress caution, especially for investors with small pockets.

“Investors should only dabble in crypto with money they can be prepared to lose,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said last week. “Because we’ve seen these wild swings before.”

What about the climate impact?

Assets like bitcoin are produced through a process called “mining”, which uses a lot of energy. And operations that rely on polluting sources have raised particular concerns over the years.

Recent research published by the United Nations University and Earth’s Future journal found that the carbon footprint of bitcoin mining in 2020-2021 across 76 nations was equivalent to the emissions from burning 84 billion pounds of coal or operating 190 natural gas-fired power plants. Coal covered the majority of bitcoin’s electricity needs (45%), followed by natural gas (21%) and hydropower (16%).

In the United States, the Energy Information Administration notes that crypto mining across the country has “grown very rapidly over the past several years,” adding that grid planners have begun to express concern about increases in related electricity demand. Preliminary estimates released by the EIA in February suggest that annual electricity use from crypto mining likely represents between 0.6% and 2.3% of US electricity use.

Environmental impacts of bitcoin mining basically boils down to the energy source used. Industry analysts have maintained that clean energy has increased in use in recent years, coinciding with increasing demands for climate protection from regulators around the world.

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AP Business Writer Kelvin Chan contributed to this report from London.