Why bitcoin is booming

The price of bitcoin surged past $100,000 for the first time on Thursday, continuing a post-election run buoyed by the pro-crypto promise of the incoming Trump administration. 

On Election Day, bitcoin — one of the most popular decentralized digital assets available — was worth $69,374, according to the cryptocurrency trading platform Coinbase. Within a month, it had spiked more than 44 percent. Other cryptocurrencies like ethereum and XRP also shot up during that period.

Cryptocurrencies’ sudden increase in value is a sign of investor optimism about President-elect Donald Trump’s policies and those of his picks to head several key regulatory agencies, some of whom have explicitly promised deregulation of the crypto industry. 

“That bitcoin hit the $100,000 mark reflects the expectation of both political support and regulatory latitude under the incoming administration,” said Ramaa Vasudevan, an economics professor at Colorado State University who has been critical of crypto. “The nomination of crypto-enthusiasts for administrative posts is a clear signal of the embrace of bitcoin and crypto triggering the flood of money into these markets.” 
Bitcoin’s rally is also a product of its increased legitimacy. Trump’s election may have sparked its rally, but the financial establishment’s embrace of the asset in recent months provided the tinder. While bitcoin was once a niche curiosity, it is now a mainstream digital currency that everyday Americans can now buy through reputable retail investment accounts. Even if bitcoin ultimately turns out to be a bubble, as many economists have argued it may, these investment vehicles have assured it some staying power.

The policies of the incoming Trump administration are fueling optimism

Trump has been an ardent cryptocurrency supporter throughout his most recent presidential campaign, and his choices to lead key government agencies related to its regulation reflect that enthusiasm. 

Bitcoin hit its highest valuation ever following the nomination of Paul Atkins on Wednesday to head the Securities and Exchange Commission (SEC), which is in charge of regulating tradable securities like stocks. Atkins was previously an SEC commissioner for six years during former President George W. Bush’s administration.

Atkins is “not necessarily the sort of burn-it-all-down type of nominee that Trump has decided upon for other positions,” Molly White, a cryptocurrency researcher and critic, told Vox. “He’s fairly establishment; he has the SEC background, but he also was a very strong advocate for deregulation when he was in the SEC and certainly since then.” Atkins is also a co-chair of the Chamber of Digital Commerce’s Token Alliance, an industry lobbying group that advocates for lax regulation of cryptocurrencies.

Perianne Boring, the CEO of the Chamber of Digital Commerce, is rumored to be one of Trump’s top picks for another key position: head of the Commodity Futures Trading Commission (CFTC), which makes rules around the trading of futures and commodities. Currently, cryptocurrency is under the purview of the SEC, but the Trump administration is reportedly weighing regulating it as a commodity instead. If that change is made, cryptocurrency would come under the purview of the CFTC, which is often seen to be more hands-off in its approach to regulation. 

Billionaire crypto enthusiast David Sacks, whom Trump named Thursday as his crypto and AI czar, will be tasked with helping formulate crypto and AI policy from the White House. In that role, Trump said in a post on Truth Social, Sacks will work closely with both the SEC and CTFC to develop a legal framework to regulate crypto.

Trump himself is also connected to cryptocurrency via his family’s cryptocurrency and trading venture World Liberty Financial. Pro-cryptocurrency groups spent $245 million in this year’s elections, more than any other industry, to support candidates across the country seen as friendlier to crypto. 

All of that likely means that the regulatory landscape under a Trump administration will be much friendlier for crypto following heavier regulations and a slew of lawsuits against crypto companies during current SEC chair Gary Gensler’s tenure. 

“The recent wave of investment in the crypto space is largely driven by the growing belief that years of regulatory uncertainty and lawfare may finally be giving way to clarity,” said Christian Catalini, founder of the MIT Cryptoeconomics Lab.

Gensler’s SEC cracked down on trading platforms like Coinbase, Binance, and Kraken, arguing that the buying and selling of cryptocurrency should have the same oversight as something like a stock or bond, and that investors should have access to the same kinds of information about crypto companies as they would have about a company that they are buying stock in. Crypto trading platforms and associated companies, however, argue that crypto tokens aren’t the same as stocks and therefore shouldn’t have the same regulations applied.

The SEC has brought lawsuits against several major crypto platforms, including Coinbase, which are ongoing. But they could be dropped under the Trump administration, and regulation around bitcoin and other cryptocurrencies is likely to change significantly under Trump.

Under a Trump regulatory regime, cryptocurrency exchanges like Binance and Coinbase could operate with less threat of litigation, making it easier for people to trade on their platforms. Enthusiasts say this will spur innovation in the industry, but it could also mean that individual traders using such platforms are more exposed to fraud, theft, and the volatile nature of the currency.

Bitcoin has become an established digital asset

Over the past five years, and particularly following the downfall of crypto trading platform FTX in 2022, the narrative around cryptocurrency’s utility has changed. Now, it’s being touted more as an investment instrument rather than a form of currency that can be used like cash, White said. And that pivot is also helping its valuation.  

In January, the SEC gave the green light to the first bitcoin exchange-traded funds (or ETFs) in the US. ETFs are baskets of financial instruments (such as stocks, bonds, commodities, or in this case, cryptocurrencies like bitcoin or ethereum) that are bought and sold on a regulated stock exchange.

ETFs offer anyone indirect access to cryptocurrency, if they choose to invest. Put simply, if the value of bitcoin increases, so does the value of these ETFs — but because of the bundled nature of ETFs and their presence on a regulated exchange, investors are more insulated from loss if bitcoin’s value declines. Firms including BlackRock, Invesco, Fidelity, Grayscale, and Ark Invest have rolled out bitcoin funds, which offer new investors, especially those who might be more risk-averse, easy ways to purchase or gain exposure to cryptocurrency.

Previously, investors had limited options for trading bitcoin. They could go on a cryptocurrency exchange to directly buy bitcoin, but then would have to figure out how to safely and conveniently store it long-term. (Cryptocurrency held on an exchange can be vulnerable to theft, while crypto stored offline is safer but difficult to trade.) They could also invest in risky bitcoin futures, agreeing to buy or sell the currency at a later date at a certain price. Now, ETFs offer an establishment-backed option.

“While no one can predict the exact inflection point or when the price will stabilize, the long-term driver of bitcoin’s rise is its evolution — not just as digital gold, but as a foundational layer of global financial infrastructure,” Catalini said.

However, Vasudevan said that there is still reason to believe that crypto’s climb won’t last forever. Bitcoin has surged before, only to crash precipitously. In November 2022, bitcoin’s value dropped 20 percent, to below $16,000, in a matter of days after the spectacular downfall of the crypto exchange FTX. The concern remains that the price of crypto is based purely on speculation, rather than any inherent value.

“This has all the makings of another bubble, one that is being stoked by the prospect of a more favorable regulatory environment and the possibilities it is opening for new products and funds that can draw in more and more people into these markets,” Vasudevan said.