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What happens if Bitcoin hits an all-time high?
You don’t need me to tell you that bitcoin (BTC) he was in tears. The first and largest cryptocurrency by market capitalization has grown by more than 6% in the last 24 hours alone, after going through a presumably psychologically important threshold of $65,000 according to data from CoinDesk indices. It is now within striking distance of its all-time high of around $69,000, last seen in late 2021, before bad things happened.
Many people, even industry insiders, were baffled by the price action how bleak the market sentiment is around cryptocurrencies existed even just a few months ago. That said, not even a major exchange like Coinbase expected this a boost in trading activity caused (another) disruption. It’s quite surprising that some people are reluctant to say that this is the start of another bull run, given that things could fall back as quickly as bitcoin has risen.
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But there are legitimate differences that already distinguish this cycle from the 2020-21 hype cycle, with the bear market wiping out some of the worst aspects of the industry. It is necessarily true that the growing interest in cryptocurrencies must be accompanied fraud, crime AND noteworthy behavior? Although it’s dangerous to say, this time could be different.
First, there’s the multi-billion dollar question: Bitcoin exchange-traded funds will continue to grow and grow. The 10 live funds saw $8 billion in net inflows so farwhich not only helped relegitimize cryptocurrencies through the involvement of reputable financial institutions including Bank of America’s BlackRock, Fidelity and Merrill Lynch, but also put significant buying pressure on the underlying commodity, bitcoin.
It’s possible that ETFs have changed market dynamics by offering people a safer way to gain exposure. If anything, these ETFs demonstrate that there was latent demand for bitcoin from all corners of the market, from retail investors to very high net worth individuals asking their banks for crypto exposure. BlackRock’s bitcoin ETF, for example, is the first fund to reach $10 billion of assets under management so quickly – and some say the next $10 billion could flow even faster.
But TradFi’s focus is not solely on ETFs. CME Group’s crypto derivatives products, typically seen as a proxy for institutional interest, are experiencing a period of great success record the volumes. A similar trend has occurred in the last cycle, where interest in cryptocurrencies generates more and more interest from more and more sectors. The higher the crypto goes, the more more people want to play with it.
Interestingly, the current cycle hasn’t attracted the same level of involvement from celebrities, at least for now. This could be a factor in not having a figure like Sam Bankman-Fried who he wanted to buy the public’s trust in FTX by funding celebrity endorsements. It is possible that the SEC has subpoenaed Kim Kardashian or the cast of characters who supposedly advertised TRON without revealing it will keep Hollywood at bay.
Of course, all of this could change – Paris Hilton could bring out her Bored Ape again any day – but for now the lack of “influencers” is a positive development considering that research shows how their investment “advice” tends to be poor. Likewise, the voices that dominated the last cycle – figures like Alex Machinsky, BitBoy, Changpeng Zhao, Do Kwon, SBF, Su Zhu, etc. – have largely been discreditedand it appears that this is a power vacuum that cryptocurrencies hope will remain empty.
This in itself might be wishful thinking, and it’s worth considering why influencers emerge. One theory is that cryptocurrencies have influencers because cryptocurrency prices are self-reflective (i.e “Number rising technology”), and someone tends to emerge to coordinate attention towards one project or another. This is amplified, like Bloomberg Notesby traders’ ability to load borrowed fundsgaining leverage to try to maximize trading profits.
Given the amount of credit already built up in cryptocurrency markets (open interest in bitcoin futures is up 90% since last fall on platforms like Binance, OKX and BitMEX, which can be leveraged up to 100x) and the a huge amount of capital flowing into meme coins like DOGE and SHIB, it’s pretty clear that people are looking to bet big this time too.
There is hope that the crypto lending industry will not take a bad turn like last time, as it ended up being dominated by a handful of now-bankrupt “hedge funds” like Alameda Research and Three Arrows Capital, which were supposed to generate the return paid to customers of now-bankrupt lending platforms like Celsius , BlockFi and Genesis.
For example, tokenization giant Securitize recently launched an “Earn” program that offers returns via over-collateralized loans and tokenized funds for financial titans KKR and Hamilton Lane. For now, while it is still assessing demand for the product, Securitize itself will pay its “sustainable” yield to users off-balance sheet, Reid Simon, head of credit at Securitize, told CoinDesk in an interview.
This in itself is an interesting move, signaling how important lending programs are as one of the few ways to use digital assets productively. “It’s a business we want to get into,” Simon said, noting that it’s “unclear” how well the crypto-native company’s brand has resonated with cryptocurrencies. “I don’t necessarily think of Securitize and Bitcoin together,” he said.
There is no guarantee that the same mistakes won’t be made again (or that bitcoin will continue to rise if it were to recapture its all-time high). It is worth noting that the recent rally came with it significant progress on the S&P 500 and Nasdaq indexes and on the renewed growth of the US technology sector, surprising many spectators who thought that rising interest rates would keep capital out of high-risk sectors.
It is possible that cryptocurrencies are doomed to Sisyphean cycles of escalating rates of illicit use, fraud, speculation, embarrassment-inducing endorsements, and greed every time prices rise, simply by the nature of how these hype cycles play out. But, for now, with the worst aspects of the industry faded and many wanting to do things differently (read: legitimately), it’s worth hoping that things don’t take a turn for the worse.
Must everything that goes up come down? Is it really different this time?