The AI revolution has affected countless industries since the launch of ChatGPT. A growing number of industries are exploring new ways to utilize AI to improve their bottom lines.
One of the groups that may have been heavily affected by advances in AI are bitcoin investors. Earlier this month, Dominic Basulto wrote an article in The Motley Fool talking about some of the ways that AI can improve the bitcoin market. He said that bitcoin can increase significantly if it becomes the primary currency for AI.
However, Elias Manolopoulos, founder of Aeon Ads writes that AI has helped bitcoin in more immediate, albeit more indirect ways. One benefit is that AI has helped traders analyze price movements and take advantage of market inefficiencies more easily. AI has also led to the proliferation of decentralized autonomous organizations (DAOs) which have helped spur demand for the digital currency.
AI is One of the Reasons Bitcoin Price is Rising, But What Are Some Others?
Since its creation in 2008, bitcoin has been a valuable and volatile digital asset in the cryptocurrency market. Now the most valued and popular of the cryptocurrencies, bitcoin has seen its price skyrocket in just a few months. At the start of 2024, bitcoin was valued at just under $44,000, having experienced a slight rise in price at the end of 2023. Following the rapid resurgence from the start of this year, bitcoin has continued to rise, with its value reaching a record high this month.
The price of the popular cryptocurrency hovered around the $70,000 mark throughout early to mid-March, before reaching almost $73,000 in value. This record high has surpassed bitcoin’s previous record of just under $69,000 from November 2021 and is way above the value it was at the turn of the year. This is such a jump that one would be surprised if the 10 year bitcoin price prediction had ever foreseen it. But what has caused bitcoin’s sudden price increase?
What has caused the recent surge?
During bitcoin’s relatively short existence, it has performed well, which will no doubt have drawn some people into buying the currency. For example, in May 2017, the cryptocurrency’s price rose by an impressive 70%. It also, following a price slump at the end of 2022, saw its value increase by more than 70% within just a few months. But what is driving bitcoin’s latest surge?
There are many contributing factors that seem to have fuelled bitcoin’s rapid rise in recent months. One of the major selling points of bitcoin is that it is decentralised. Basically, users of the cryptocurrency can carry out transactions without a third-party financial authority regulating the process. This means no permission, no external fees, and no international exchange rates. Anyone, anywhere can trade in bitcoin, regardless of their financial history or credit rating.
Another aspect of bitcoin’s appeal is that it has the potential to be an inflation hedge. Bitcoin cannot be devalued by a central financial institution producing more of it because of a ‘supply crunch’. In other words, it has a limited number of units – 21 million to be exact – and therefore the rate of new bitcoin supplies entering the market reduces by half. It could be that the price of bitcoin has been rising due to increased demand for an asset that is set to one day run out. Furthermore, like gold reserves, it has been viewed, perhaps controversially, as an uncorrelated asset within the stock market. This would likely make it appeal to investors, especially those looking to diversify their portfolio.
Another factor which might contribute to bitcoin’s recent increase in popularity could be the digital asset’s resilience in the face of challenging economic conditions. For instance, two of the world’s largest and most influential economies – Japan and the United Kingdom, ranked as the global number three and six respectively according to Forbes, Statista, and Investopedia – both experienced a recession at the end of 2023. However, despite such strong economies getting into difficulty, bitcoin remained strong.
Diversification
One major contributor to bitcoin’s price surge since the turn of the year could be down to a huge announcement in January. Reported by media outlets worldwide, such as the Guardian newspaper and Reuters, as “a watershed moment”, an announcement was made by the US financial regulator that would cause much noise in the crypto world.
The Securities and Exchange Commission (SEC) approved an exchange traded fund (EFTs) system for bitcoin that would enable it to be a publicly traded commodity on traditional stock markets and exchanges and would mean that its price could be tracked. While the US Government has stressed that the creation of an EFT for bitcoin is not an endorsement of the cryptocurrency, this move will have no doubt brought a degree of credibility and renewed confidence to the digital asset, especially among less experienced investors. The approval by the SEC makes investing in bitcoin less of a risk and therefore could have attracted an influx of new investors.
Following the SEC milestone, many brokerages crowded the market, increasing their holdings, whilst other brokerages underwent significant outflows. By March, some of these outflows seemed to rebalance the market somewhat, potentially due to more options being available to investors. It is worth noting that a spot bitcoin EFT enables investors to get direct exposure to the digital currency without having to buy it or store it themselves. This would make investing in bitcoin seem like an attractive prospect and therefore could also be a reason why the digital asset’s value has risen.
The future
While bitcoin enjoys a surge in value, is this latest rise sustainable? According to most leading market analysts, parabolic market movers – assets which jump in price over a very short time – don’t tend to continue rising. However, the recent halving of bitcoin units seems to have pushed the digital currency’s value and so it can be presumed that as the number of bitcoins newly mined continues to decrease, so will its price continue to rise. Whether or not bitcoin’s recent success continues remains to be seen.
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