Bitcoin Reaches $68,000 to Set Record High
Created in 2009, Bitcoin was the world’s first cryptocurrency – digital currency that exists only in electronic form. There are no physical banknotes or coins. Traditional currencies, such as the U.S. Dollar or Japanese Yen, are considered centralized currencies. Each nation’s central bank, such as the U.S. Federal Reserve, establishes monetary policy and manages the supply of money in their financial system.
Cryptocurrencies are decentralized currencies. No single government owns the cryptocurrency or provides regulatory control or oversight. There are also no restrictions on who can create them. By the end of 2017, the number of cryptocurrencies had grown to nearly 1,400. Today, there are more than 22,000 yet Bitcoin remains the most widely known.
In its first few years of existence, the price of a single Bitcoin was less than $0.10. On Tuesday, Bitcoin reached a record-high $68,783 according to cryptocurrency website CoinMarketCap. This broke the previous record of $66,002 set back in October 2021. Since Jan. 1, 2023, the price of Bitcoin has risen 315%. The meteoric rise in Bitcoin’s price over the years quickly gained the attention of both individual investors and Wall Street financial powerhouses. Many other cryptocurrencies have also surged to once-unimaginable new highs.
Accordingly, Bitcoin’s rise to prominence has been less as a new-age form of currency and more as a high-risk alternative investment. Let’s be honest, have any of you actually used Bitcoin to buy goods and services at your local store? OK, let me make it easier. Do you even know anyone who has?
According to cryptocurrency historians, the first time Bitcoin was used in a commercial transaction was back on May 20, 2010. Now, one might wonder what was purchased at this historic and groundbreaking moment. Was it a car or maybe a new television or stereo? Was it for new stylish clothing? Was it to buy airline tickets for that dream vacation? No…it was for pizza. A man named Laszo Hanyecz used 10,000 Bitcoin to buy two pizzas from Papa Johns. At Tuesday’s record-high price of $68,783, those same 10,000 Bitcoin would now be worth $687,830,000.
Though nations around the world have tried to crack down on the wild-west nature of the cryptocurrency industry, claims of fraud, corruption and price manipulation remain rampant. One recent scandal was the collapse of FTX Trading Ltd. (FTX), the former Bahamas-based company founded by American Sam Bankman-Fried. FTX operated as a cryptocurrency exchange – where cryptocurrencies could be bought and sold – and also ran a cryptocurrency investment hedge fund. In early 2022, FTX was valued at $32 billion. Months later, the company collapsed and filed for bankruptcy. It is now essentially worthless. Bankman-Fried was ultimately convicted of multiple felonies including wire fraud, securities fraud and money laundering.
Cryptocurrencies also make for a lousy form of currency. Perhaps their greatest weakness is their extreme price volatility. In a single day, Bitcoin’s price can quickly rise or fall by 5%-15%. In the 12 months from November 2021 to November 2022, Bitcoin’s price fell 76%.
In the world of trade and commerce, buyers and sellers need stability of currency. For example, a U.S. $10 bill in your wallet or bank account will still be worth $10 the next day, week, month or year. That’s why the U.S. Dollar is the world’s de facto currency. The U.S. Dollar remains a symbol of global strength and stability. It is the most liquid currency and is readily accepted for trade around the globe. In fact, roughly 45% of all the U.S. currency in circulation is located outside our country, including 80% of all $100 bills. Nearly 90% of all foreign currency transactions include the U.S. Dollar.
There’s no guarantee the rise in Bitcoin’s price will continue. But for now, investors are rejoicing and celebrating in their gains. But as history has shown, investing in Bitcoin can be a rollercoaster ride filled with its share of ups and downs.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.
