Bitcoin, the world’s largest cryptocurrency, has reached a new all-time high of over $69,000 on March 5, 2024, according to CoinMarketCap. This remarkable achievement comes less than two years after the infamous FTX scandal that rocked the crypto industry and sent prices tumbling.
What was the FTX scandal?
FTX was one of the largest and most popular crypto exchanges in the world, offering a variety of services such as spot trading, futures contracts, options, leveraged tokens, and more. It had millions of users and processed billions of dollars in daily volume.
However, in February 2022, FTX announced that it had filed for bankruptcy after suffering massive losses due to a series of cyberattacks, frauds, and lawsuits. The exchange claimed that it was unable to access its cold wallets, where most of its funds were stored, and that it had no other option but to cease operations.
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The FTX collapse triggered a wave of panic and uncertainty in the crypto market, as many investors feared that their funds were lost or inaccessible. The price of Bitcoin dropped from nearly $69,000 in November 2021 to less than $17,000 in March 2022, a decline of more than 75%. Other cryptocurrencies also suffered heavy losses, as the market capitalization of the entire crypto sector shrunk by more than $1 trillion.
How did Bitcoin bounce back?
Despite the FTX disaster, Bitcoin proved to be resilient and adaptable, as it gradually regained its momentum and popularity over the next two years. Several factors contributed to Bitcoin’s recovery, such as:
The approval of spot Bitcoin ETFs in January 2024 by the U.S. Securities and Exchange Commission (SEC). These ETFs allow investors to buy and sell shares that track the price of Bitcoin without having to deal with the complexities and risks of owning or storing the actual cryptocurrency.
The approval of Bitcoin ETFs was seen as a major milestone for the crypto industry, as it signaled a higher level of legitimacy and acceptance by regulators and mainstream investors.
The anticipation and occurrence of the Bitcoin halving in April 2024. The halving is an event that occurs every four years, where the reward for mining new blocks of Bitcoin is cut in half. This reduces the supply of new Bitcoins entering the market, creating a scarcity effect that tends to drive up the price.
The halving also increases the difficulty and cost of mining, making it more profitable for miners to hold rather than sell their Bitcoins. Historically, Bitcoin has experienced significant price increases in the months leading up to and following each halving.
The diversification and innovation of the crypto ecosystem. Despite the FTX setback, the crypto industry continued to grow and evolve, offering new products and services that catered to different needs and preferences of users.
For example, decentralized finance (DeFi) platforms emerged as a popular alternative to traditional financial institutions, providing users with access to lending, borrowing, trading, saving, and more without intermediaries or centralized control.
Similarly, non-fungible tokens (NFTs) became a hot trend in the digital art and entertainment space, allowing creators and collectors to buy and sell unique digital assets that represent ownership and authenticity.
The increased adoption and awareness of Bitcoin by various sectors and segments of society. Bitcoin gained more exposure and recognition as a viable form of money and investment by various entities such as governments, corporations, celebrities, institutions, and individuals.
For example, some countries such as El Salvador and Ukraine legalized Bitcoin as a legal tender or an asset class, respectively. Some companies such as Tesla and MicroStrategy added Bitcoin to their balance sheets or accepted it as a payment method. Some celebrities such as Jack Dorsey and Paris Hilton endorsed or promoted Bitcoin on their social media platforms.
Some institutions such as Harvard University and BlackRock invested in Bitcoin or offered crypto-related services to their clients. Some individuals such as Michael Saylor and Chamath Palihapitiya became vocal advocates and influencers of Bitcoin.
What are the challenges and opportunities for Bitcoin?
Bitcoin has come a long way since the FTX fiasco, but it still faces some challenges and uncertainties that could affect its future performance. Some of these include:
The regulatory environment. While some regulators have shown a more favorable attitude towards Bitcoin and crypto in general, others have remained skeptical or hostile.
For example, China has banned all crypto-related activities within its borders, while India has proposed a bill that would criminalize the possession or use of cryptocurrencies. These actions could have negative impacts on the demand and supply of Bitcoin, as well as its reputation and credibility.
The technical issues. Bitcoin relies on a network of computers, or nodes, that validate and record transactions on a public ledger, or blockchain. However, this network is not immune to glitches, errors, or attacks that could compromise its security, functionality, or scalability.
For example, in May 2020, a software bug caused a temporary split in the Bitcoin network, creating confusion and uncertainty among users. In October 2021, a massive, distributed denial-of-service (DDoS) attack targeted several Bitcoin nodes, slowing down the network and disrupting transactions.
The competition. Bitcoin is not the only cryptocurrency in the market, nor is it the most advanced or efficient. There are thousands of other cryptocurrencies that offer different features, benefits, and trade-offs that could appeal to different users.
For example, Ethereum is a platform that enables smart contracts and decentralized applications that can perform complex functions beyond just transferring value.
Litecoin is a cryptocurrency that offers faster and cheaper transactions than Bitcoin. Cardano is a cryptocurrency that aims to solve some of the challenges of scalability, interoperability, and sustainability that plague Bitcoin and other cryptocurrencies.
On the other hand, Bitcoin also has some unique advantages and opportunities that could enhance its value and adoption in the long run. Some of these include:
The network effect. Bitcoin is the oldest, largest, and most widely used cryptocurrency in the world, with millions of users and supporters across the globe. It has established itself as the leader and standard-bearer of the crypto industry, enjoying a high level of trust, recognition, and influence. It also has a vibrant and diverse community of developers, miners, investors, enthusiasts, and advocates who contribute to its innovation and improvement. The network effect creates a positive feedback loop that makes Bitcoin more valuable and attractive as more people join and use it.
- The scarcity factor. Bitcoin has a fixed supply of 21 million coins that will ever be created, making it a scarce and deflationary asset. This means that as the demand for Bitcoin increases over time, its price will tend to rise as well. Unlike fiat currencies that can be printed or manipulated by governments or central banks, Bitcoin is immune to inflation or devaluation. It also has a predictable and transparent monetary policy that is governed by mathematical rules rather than human whims.
The hedge factor. Bitcoin has often been compared to gold as a store of value and a hedge against inflation, currency debasement, or geopolitical risks. As the world faces unprecedented challenges such as the COVID-19 pandemic, climate change, social unrest, and political instability, many people are looking for alternative ways to preserve and protect their wealth and purchasing power.
Bitcoin offers an attractive option for those who seek to diversify their portfolios and reduce their exposure to traditional assets such as stocks, bonds, or commodities.
Bitcoin has demonstrated remarkable resilience and adaptability since the FTX bankruptcy that shook the crypto world in 2022. It has bounced back to new heights thanks to various factors such as regulatory approval of ETFs, halving events, ecosystem diversification and innovation, and increased adoption and awareness.
However, Bitcoin is not without challenges and uncertainties that could pose threats or obstacles to its growth and stability. It also faces competition from other cryptocurrencies that offer different value propositions and solutions.
Ultimately, Bitcoin’s future will depend on how well it can overcome these challenges and leverage these opportunities to maintain its relevance and dominance in the crypto space.