The cryptocurrency’s price surged past $40,000, a figure it last touched on May 18. The increase marks a sharp reversal from Bitcoin’s recent slump. After reaching a record high in April, the cryptocurrency’s price had ticked downward. But the swell in its prices over the weekend might have arrested that decline.
At 23:56 UTC on Tuesday, the cryptocurrency was changing hands at $40,343.92, a roughly 2% increase in its price from a day earlier. It is up by 37.5% since the beginning of this year1.
Why Did Bitcoin’s Price Increase?
Bitcoin’s climb started early Sunday when it was trading at $35,000. By Monday, the cryptocurrency had registered a 17% increase in its price to cross $40,000.1 Two news developments contributed to the latest bump in Bitcoin’s price, according to reports.
The first one was Tesla CEO Elon Musk's tweet saying that, due to the energy consumption and the accompanying environmental damage of Bitcoin, he would no longer allow Teslas to be purchased with the cryptocurrency.2 Bitcoin is estimated to use an amount of electricity roughly equal to that of the entire country of Argentina. Musk wielded the social media platform’s megaphone again on Sunday morning to partially reverse course.
Musk tweeted that his company might resume allowing Bitcoin transactions if there was “confirmation of reasonable (approximately 50%) clean energy usage by miners with positive future trend."3 According to reports, buyers moved into crypto markets to purchase Bitcoin after his tweet.4
On Monday morning, hedge fund manager Paul Tudor Jones further accelerated the cryptocurrency’s price increase. Jones, who has invested 2% of his net assets in Bitcoin, said he considered the cryptocurrency to be a “great diversifier."5 “Everybody asks me what should I do with my Bitcoin. The only thing I know for certain is that I want 5% in gold, 5% in bitcoin, 5% in cash, 5% in commodities,” he told CNBC.
Tudor Jones is among an increasing number of institutional investors and hedge fund owners pivoting away from traditional financial instruments towards Bitcoin. The cryptocurrency’s enthusiasts in recent times have included investing titans such as Stanley Druckenmiller, Ray Dalio, and BlackRock’s Larry Fink.67
Their positive assessments of Bitcoin have been complemented with a widening array of crypto offerings by investment firms. For example, State Street recently launched a new division that will offer services related to decentralized finance and the digital economy.8 Prominent investment bank Goldman Sachs offers Bitcoin futures exposures to clients.9
Bitcoin’s Underlying Problems Remain
While these developments bring much needed liquidity to its ecosystem, the cryptocurrency still remains a combustible asset prone to enormous price swings in short periods of time. Just this year, the cryptocurrency’s price traversed a wide territory between a record high of above $63,000 and a low below $32,000 in a period of two months.1
Bitcoin’s underlying problems -- from high energy use for Bitcoin mining to a trading ecosystem dominated by a few large players like Tesla -- also persist. The overhang of regulation on the cryptocurrency’s price also remains. Countries around the world, including China and Iran, are hardening their stance and cracking down on crypto mining and trading.1011
In the United States, chair of the Securities and Exchange Commission (SEC) Gary Gensler recently cautioned investors against Bitcoin markets. “Investors should be aware – I’m saying this is in my own voice – that the underlying Bitcoin cash markets there’s not the robust oversight that you have in the stock market or the derivatives markets,” he told attendees at a conference.12
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