Bitcoin has increased by 140% in value year-to-date, with the latest rally heavily influenced by the US election result.
“We’ve reached the magic moment as bitcoin goes through $100,000 for the first time,” said Dan Coatsworth, investment analyst at AJ Bell.
“Forget the Brat Summer. Welcome to the Brat Winter. First, Charli XCX redefined the meaning of the term to characterise an aesthetic and a way of life, now we’ve got a new twist on Brat representing one of this year’s biggest stories in the investment universe – Bitcoin Rallies After Trump.
“Smashing through the $100,000 level does not represent bitcoin going mainstream. It’s merely a psychological factor and ultimately just a number.
“A lot of people have got rich from the cryptocurrency soaring in value this year, but this high-risk asset isn’t suitable for everyone. It’s volatile, unpredictable and is driven by speculation, none of which makes for a sleep-at-night investment.
He continued: “Donald Trump is the driving force behind the latest bitcoin frenzy. Bitcoin has gone bananas since he won the US presidential election as traders and investors labelled it the perfect Trump Trade.
“During the election campaign, Trump promised to make the US ‘the crypto capital of the planet’, build a strategic reserve of bitcoin if he returned to the White House, and he also set up his own crypto venture. Traders and investors took this to represent the ultimate endorsement of crypto and piled into bitcoin as soon as the election result was called.
“Since then, we’ve had further bullish signals. US-listed business intelligence group MicroStrategy raised more than $7 billion through issuing shares and convertible bonds, and plans to use the proceeds to buy more bitcoin on top of the 279,420 units it already owns (worth $28.4 billion). That sent a big signal to the market that MicroStrategy remains bullish on the cryptocurrency even after the recent price rise, and investors raced to load up ahead of the company’s signalled buying spree.
“We then had chatter that Trump might appoint the White House’s first ever ‘crypto czar’. In theory, this role would shape and drive the government’s policy on cryptocurrency and associated regulation. This would be a significant turning point for the crypto industry and imply we have an administration who might have an open mind towards how digital currencies could work in the modern world. That would represent crypto’s coming of age moment, moving from the world of day trading to broader applications in the financial system. These events have fuelled a buying spree in bitcoin.
“The final catalyst that got bitcoin over the $100,000 level was Trump’s choice of person to run Wall Street regulator, the Securities and Exchange Commission. Putting forward Paul Atkins to be the SEC’s next boss gave the market all the confidence it needed that the US authorities would become friendlier towards the crypto industry.
“Atkins used to be co-chair of the Digital Chambers’ Token Alliance, a body dedicated to researching and promoting the development of digital asset and blockchain-based technologies. He is considered to be far more crypto-friendly than the outgoing head of the SEC, Gary Gensler.
“The outperformance of bitcoin speaks of some investors looking for ‘hard’ assets, where supply cannot be conjured out of thin air by central bankers or governments, as is the case with money and sovereign bonds. It also harks back to the 1970s, when commodities, notably gold and oil, did better than everything else during a period of lofty inflation and geopolitical tension, most notably in the Middle East.
“It’s easy to get carried away by bitcoin’s price rally and be sucked in by FOMO (fear of missing out), yet bitcoin has several times in the past crashed as quickly as it has gone up, and this is certainly not an investment for the faint-hearted.
“It’s important to note that the UK financial regulator, the FCA, remains reluctant to permit mass market vehicles for crypto investment, given the potential for consumer harm. Many UK investors have instead turned to shares in blockchain companies as a way of getting exposure to bitcoin. Blockchain is a decentralised, distributed ledger that records transactions and tracks assets across a network, and it is used by bitcoin.
“Anyone buying bitcoin should be willing to accept the potential downside, especially if the crypto market eventually proves to be the emperor’s new clothes. The Bank of International Settlements estimated that around three quarters of bitcoin buyers between 2015-2022 were likely to have lost money, despite a huge rise in the price of the cryptocurrency, almost certainly because they got sucked in at precisely the wrong time.
“Bitcoin doesn’t have any earnings and doesn’t pay an income, so price action is largely driven by sentiment. If you buy some, you’re relying on someone paying more than you further down the line to turn a profit. While that’s true of shares in companies too, earnings in the real economy provide an anchor for sentiment to coalesce around. Even with this stabilising force, equity markets can be choppy enough.
“Several challenges could hamper bitcoin’s long-term growth. These include regulatory uncertainties and environmental concerns related to bitcoin mining. Moreover, the emergence of central bank digital currencies presents a double-edged sword. While they appear to validate the concept of digital currencies, they also pose direct competition to decentralised cryptocurrencies like bitcoin.
“The long-term adoption of cryptocurrencies by consumers, businesses and investors remains highly uncertain. Bitcoin’s volatility challenges its utility as a currency, and while new US exchange-traded funds tracking the crypto price have initially attracted interest, institutional investors may remain cautious about incorporating cryptocurrencies into their portfolios. As ever, retail investors shouldn’t bet their shirt unless they’re willing to lose it.”
Nigel Green, CEO of deVere Group predicts a short-term sell-off before Bitcoin rallies further to hit $120,000 in the first quarter of 2025.
“This $100,000 breakthrough was inevitable,” said Green, who forecast last month that Bitcoin would reach this historic level following Trump’s election victory.
“However, with such a dramatic rise in a short period, it’s natural that some investors will lock in profits. This likely sell-off will be a temporary pause before Bitcoin builds on its momentum, surging to $120,000 as early as the first quarter of next year.”
He added: “Bitcoin’s extraordinary run comes as markets anticipate that Trump 2.0 will create a more favorable regulatory framework for cryptocurrencies. Investors are betting on the President-elect’s pro-crypto stance, with policies expected to reduce red tape and promote innovation in blockchain technology.
“Trump’s likely approach to cryptocurrency regulation is already fueling optimism across the market. His administration will almost certainly prioritize policies that encourage adoption and integration of digital assets into mainstream financial systems. We also expect Trump will install a head of the Securities and Exchange Commission (SEC) who is friendly to the crypto industry.”
