Bitcoin, the world’s largest cryptocurrency by market capitalization, has surged past $50,000 for the first time since May 2021, amid renewed optimism and demand for the digital asset.

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According to CoinMarketCap, bitcoin’s price hit an intraday high of $50,270 as of writing, up 4.8% on the day and 15.7% on the year. The crypto asset has more than recovered from its slump in 2022, when it plunged to as low as $16,000 amid a series of industry scandals and regulatory crackdowns. Bitcoin’s market cap has now surpassed $941 billion, making it more valuable than some of the world’s largest companies, such as Facebook, Tesla, and Visa.

What’s behind the rally?

One of the main drivers of the recent rally is the launch of the first spot bitcoin exchange-traded funds (ETFs) in the U.S. in January 2024, which have attracted billions of dollars in inflows from institutional and retail investors. The spot ETFs allow investors to directly buy and sell bitcoin through a regulated and transparent vehicle, unlike the previous products that tracked bitcoin futures or trusts.

Another factor that has boosted the sentiment is the slowing outflows from the Grayscale Bitcoin Trust (GBTC), which was once the dominant vehicle for bitcoin exposure in the U.S. GBTC suffered from a persistent discount to its net asset value (NAV) due to the lockup period and the high fees, which prompted many investors to switch to the new spot ETFs. However, the outflows from GBTC have slowed down in recent weeks, while the inflows to the spot ETFs have remained strong, indicating a healthy demand for bitcoin across different platforms.

How high can bitcoin go?

Bitcoin’s current rally has reignited the hopes of many investors and analysts who believe that the cryptocurrency can reach new heights in the near future. Some of the bullish predictions include:

• $100,000 by the end of 2024, according to the Stock-to-Flow model, which is based on the relationship between the supply and the demand of bitcoin. The model suggests that bitcoin’s scarcity and halving cycles, which reduce the supply of new coins every four years, will drive its price higher over time.
• $200,000 by 2025, according to Cathie Wood, the founder and CEO of Ark Investment Management, which is one of the most prominent supporters of bitcoin and other disruptive technologies. Wood said that bitcoin’s adoption as a global settlement network and a store of value will propel its value to unprecedented levels.
• $500,000 by 2030, according to the Winklevoss twins, the co-founders of Gemini, a leading cryptocurrency exchange and custodian. The twins said that bitcoin’s superior qualities as a form of money, such as its portability, divisibility, durability, and scarcity, will make it more valuable than gold, which has a market capitalization of about $10 trillion.

What are the risks and challenges?

Despite the bullish outlook, bitcoin still faces several risks and challenges that could hamper its growth or cause volatility in the short term. Some of the key issues include:

• Regulation: Bitcoin and other cryptocurrencies are subject to different and often unclear regulations in different jurisdictions, which could create uncertainty and confusion for investors and users. For example, China has banned cryptocurrency trading and mining, while India has proposed to outlaw private cryptocurrencies. On the other hand, some countries, such as El Salvador, have adopted bitcoin as legal tender, while others, such as the U.S., are working on creating a clear and supportive regulatory framework for the industry.
• Security: Bitcoin and other cryptocurrencies rely on cryptography and decentralized networks to ensure their security and integrity, but they are not immune to cyberattacks, hacks, or thefts. For example, in 2014, Mt. Gox, the largest bitcoin exchange at the time, lost 850,000 bitcoins, worth about $450 million, due to a security breach. In 2016, Bitfinex, another major exchange, lost 120,000 bitcoins, worth about $72 million, due to a hack. Therefore, investors and users need to be careful and vigilant when choosing their platforms and wallets to store and transact their cryptocurrencies.
• Competition: Bitcoin and other cryptocurrencies face competition from both traditional and emerging forms of money and payment systems, such as fiat currencies, central bank digital currencies (CBDCs), stablecoins, and other blockchain-based tokens. For example, the U.S. Federal Reserve is exploring the possibility of issuing a digital dollar, while Facebook is developing its own digital currency, called Diem, which aims to facilitate cross-border payments and financial inclusion. These alternatives could pose a threat or a challenge to bitcoin’s adoption and dominance in the market.