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The oldest and most popular digital currency bitcoin surged earlier in the week to over $80,000 on exchanges. This is the highest exchange rate that the cryptocurrency has ever reached. But what is behind this?
A decisive factor is the election of Donald Trump as the new president of the USA. Thus, since November 4th, bitcoin has risen steadily.
"Donald Trump has declared that he will be the president of cryptocurrency and that the US will play a pioneering role in the bitcoin sector," says Jonas Gross, chairman of the Digital Euro Association - an organization committed to digital payment systems.
Until now, only the presidents of countries like El Salvador have made such promises. Well it's no surprise that the bitcoin community is excited right now.
Although in his first presidential term Trump has spoken negatively about bitcoin, before the 2024 election he made a U-turn. At a major bitcoin conference in Nashville e.g. he promised, that he will continue to leave the cryptocurrency market unregulated and take care of free energy.
The production of new bitcoins (mining) and keeping the network running, through which the many transactions are recorded (blockchain), requires a lot of energy. New Bitcoins are generated while the computer solves computational tasks. This requires large amounts of computation, which consumes a lot of energy.
New hop for bitcoin
The director of the Blockchain center of the School of Finance and Management in Frankfurt, Co-Pierre Georg, considers that the increase in the bitcoin rate is mainly related to "structural reasons, which were reinforced by the US elections". Georg talks about the licenses that were granted in January for Bitcoin-ETFs, through which investments with bitcoins have been significantly simplified.
ETF is the acronym for Exchange-Traded-Funds. With ETFs, stock indices are created, such as the German stock index DAX. With bitcoin-ETF ETF providers buy bitcoins. By purchasing shares, investors participate in the development of the bitcoin rate, without having to buy bitcoins themselves.
A lot of money has poured into bitcoin ETFs since then, says Blockchain expert Georg. This means, therefore, that mainly institutional depositors, such as the world's largest asset manager BlackRock have invested in bitcoin. But on the other hand in crypto exchanges like Coinbase, Bitpanda or Kraken there is no inherent increase in interest.
According to Jonas Groß, this record growth is mainly about atmosphere and trust - just like in other markets. In the last ten years the industry has been in the headlines for fraud cases. "So a reason is needed to recover the image and to set the machine in motion again." Trump's promise has now given a positive breath to bitcoin again.
One of the main opponents of the bitcoin community until now has been the head of the US Securities and Exchange Commission, the SEC, Gary Gensler. He wants to regulate the digital currency market. It is now expected that Donald Trump will make efforts to restructure this institution. So Gary Gensler will run into obstacles. Although he cannot be replaced by another in the post, there will be efforts to catch him concretely in the mistakes.
The director of Blockchain-Centers sees Trump's victory as a victory for the bitcoin lobby. "It now appears that the crypto industry has bought influence over the new government and congress." By that he means Tesla boss Elon Musk, who prefers bitcoin and has massively supported Trump's campaign. Yes, he also has in mind many other politicians who have been supported by this branch.
According to the Reuters agency, almost 120 million dollars from the crypto industry have been poured into the Trump campaign.
Bitcoin's growth was once explained by the fact that large enterprises accepted the cryptocurrency as a means of payment, such as Paypal payment service in 2020. "I don't see such reasons at the moment", says Georg. “Bitcoin is completely unsuitable for payment circulation and also cannot be a stable deposit. The only reason to buy bitcoin is speculative.”
While Jonas Groß from the Digital Euro Association thinks that there are currently several fundamental factors for bitcoin. “Bitcoin has established itself as a new class of deposit. Meanwhile, the first pension funds have started to be invested, and in my opinion it is only a matter of time until the first state funds are available. And when this is achieved, it means that we are dealing with parameters of a completely different level."
However, any investment in bitcoin is risky, and markets with high rates have now overestimated Trump's promise. "If he doesn't keep this promise, rates will naturally fall again."
"For bitcoin, the rule has always been that you should invest only what you are willing to lose completely," says Pierre Georg. A prediction regarding Trump's behavior towards bitcoin is now "like divination"./ DW
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