Bitcoin reached $87,000 for a new record high. What you need to know about the post-election crypto rally

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NEW YORK (AP) – As money continues to flow into crypto following Donald Trump’s victory last week, bitcoin rose to another record high.

The world’s largest cryptocurrency surpassed $87,000 for the first time on Monday. As of approximately 3:45 pm ET, the price of bitcoin stood at $87,083, per CoinDesk, up more than 28% in the past week alone.

That’s part of the rally in cryptocurrencies and crypto-related investments since Trump won the US presidential election last week. Analysts attribute much of the recent gains to the expected “crypto-friendly” nature of incoming regulators, which would translate into more regulatory clarity but also freedom.

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However, as with everything in the volatile cryptoverse, the future is difficult to predict. And while some are doing well, others continue to warn of investment risks.

Here’s what you need to know.

Make a backup. What is cryptocurrency again?

Cryptocurrency has been around for a long time, but it seems to be coming under the spotlight in recent years.

In basic terms, cryptocurrency is digital money. This type of currency is designed to work through an internet network without any central authority – meaning it is usually not backed by any government or banking institution – and transactions are recorded using a technology called blockchain.

Bitcoin is the largest and oldest cryptocurrency, although other assets such as Ethereum, Tether and Dogecoin have gained popularity over the years. Some investors see cryptocurrency as a “digital alternative” to traditional money – but it can be highly volatile, and dependent on major market conditions.

Why is bitcoin and other crypto assets going up now?

A lot has to do with last week’s election results.

Trump was previously a crypto skeptic, but changed his mind and embraced cryptocurrencies during this year’s presidential race. He pledged to make the US the “crypto capital of the planet” and create a “strategic reserve” for bitcoin. His campaign is accepting donations in cryptocurrency and showed supporters at a bitcoin conference in July. He also launched World Liberty Financial, a new family-owned cryptocurrency exchange.

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Crypto industry players have welcomed Trump’s victory, hoping that he will be able to implement long-pleading legal and regulatory reforms. And Trump had previously promised that, if elected, he would remove the chairman of the Securities and Exchange Commission, Gary Gensler, who has been leading the US government in the crypto industry and has repeatedly called for more oversight.

“Crypto strengthened as Election Day dragged on into the night and as it became increasingly clear that Trump would emerge victorious,” Citi analysts David Glass and Alex Saunders wrote in a research note on Friday, pointing to a broader industry sentiment about Trump being “crypto-friendly.” ” and a possible change in regulatory support.

Even before the post-election rally, assets like bitcoin have posted significant gains over the past year or so. Much of the credit goes to the early success of a new form of investing in the asset: bitcoin ETFs, which were approved by US regulators in January.

Entry into existing ETFs, or exchange-traded funds, “has been a major driver of Bitcoin returns for some time, and we expect this relationship to continue in the near term,” Glass and Saunders noted. They added that spot crypto ETFs saw the largest inflows on record in the days following the election.

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What are the risks?

Crypto assets like bitcoin have a history of extreme price volatility – which can come suddenly and happen over the weekend or overnight in continuous trading around the clock, every day.

In short, history shows that you can lose money as quickly as you did. Long-term price behavior depends on major market conditions.

At the beginning of the COVID-19 pandemic, bitcoin was worth just over $5,000. Its price rose to around $69,000 in November 2021, a period marked by high demand for tech goods, but later crashed amid an aggressive series of rate hikes by the Federal Reserve aimed at curbing inflation. Then came the FTX crash of 2022, which significantly reduced confidence in crypto in general.

At the beginning of last year, one bitcoin could cost less than $17,000. Investors, however, began to return in droves as inflation began to cool – and returns rose on expectations and the early success of existing ETFs. While some crypto supporters see the possibility of more record-breaking days, experts still stress caution, especially for small investors.

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“Investors should only get into crypto with money they can be prepared to lose,” said Susannah Streeter, head of finance and markets at Hargreaves Lansdown, last week. “Because we have seen these criminals in the past.”

What about the impact of climate?

Assets like bitcoin are produced through a process called “mining,” which consumes a lot of energy. And jobs that depend on polluting sources have drawn a lot of concern over the years.

A recent study published by the United Nations University and Earth’s Future magazine found that the carbon footprint of bitcoin mining for 2020-2021 in 76 countries was equivalent to the emissions from burning 84 billion pounds of coal or using electric power plants. 190 natural. Coal meets the majority of bitcoin’s electricity needs (45 and hydropower (16%).

In the US, the Energy Information Administration notes that crypto mining across the country “has grown very rapidly in the past few years,” adding that grid planners have begun to express concern about the associated increase in electricity demand. Preliminary estimates released by the EIA in February show that annual electricity consumption from crypto mining probably represents between 0.6% and 2.3% of US electricity consumption.

The environmental impacts of bitcoin mining boil down to the energy source used. Industry analysts have emphasized that clean energy use has increased in recent years, coinciding with growing calls for climate protection from regulators around the world.

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AP Business Writer Kelvin Chan contributed to this report from London.

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