Bitcoin surges to US$100,000: What’s fuelling the historic high?

The cryptocurrency world is abuzz as Bitcoin recently crossed the US$100,000 mark. But before you rush to open that crypto wallet, let’s take a clear look at what’s driving this surge and what it means for potential buyers.

The current Bitcoin rally has captured headlines, but here’s the reality: much of this price movement is driven by good old-fashioned speculation. Most people buying Bitcoin aren’t using it to buy their morning coffee – they’re betting the price will go even higher. It’s like a giant game of hot potato, with everyone hoping they won’t be the last one holding when the music stops.

Remember when your cousin wouldn’t stop talking about Bitcoin in 2017? That same FOMO (fear of missing out) is back in full force. Whenever someone posts about their crypto gains on social media, another person jumps in, pushing prices higher.

The hard truth about Bitcoin’s value

Traditional markets operate simply: prices move based on supply and demand. Take oil for example – its price fluctuates due to real supply shortages or increased industrial demand.

Bitcoin works differently. With a fixed cap of 21 million coins, its supply remains static, unaffected by production changes. Instead, Bitcoin’s price movements are primarily driven by market sentiment rather than practical utility. Most trading activity comes from speculative buying rather than people using Bitcoin as a currency.

Unlike stocks or real estate, Bitcoin doesn’t generate income through earnings or rent; It produces no cash flow. Its value rests entirely on what other investors are willing to pay – similar to the historic Dutch tulip mania, but in digital form.

FOMO and hype: The forces behind crypto markets

When Tesla announced its Bitcoin acceptance, only to reverse course months later, the dramatic price swings revealed the cryptocurrency market’s extreme sensitivity to high-profile influences. Today’s crypto landscape resembles a financial reality show, where crypto influencers command extraordinary power – a single tweet can trigger million-dollar market movements. Consider Kim Kardashian’s EthereumMax promotions or Hailey Welch’s ‘Hawk Tuah’ meme-inspired Hawk coin which crashed within hours. These aren’t random occurrences but calculated elements of a sophisticated hype machine targeting our get-rich-quick aspirations.

Social media has transformed Bitcoin into a viral financial phenomenon. TikTok feeds overflow with young investors flaunting supposed crypto fortunes while casual conversations turn into cryptocurrency investment advice. This digital-age FOMO (fear of missing out) spreads like wildfire, fuelled by influencers and media narratives that exploit our deep-seated fear of missing ‘the next big thing’.

The media amplifies this effect by trumpeting Bitcoin’s highs while downplaying its crashes. Like highlighting only winning lottery tickets, this selective reporting creates a distorted picture where crypto success seems easily won. The result? A self-reinforcing cycle of hype where victories are broadcast loudly, but losses are met with silence, perpetuating the illusion of easy wealth in the crypto world.

Risks to consider about Bitcoin

1. Risk of a bubble. Bitcoin’s history tells a cautionary tale: After reaching US$20,000 in 2017, it plummeted to US$3,000. Similarly, its 2021 peak of US$69,000 was followed by a drop below US$20,000. While history doesn’t always repeat itself, patterns often emerge.

2. The manipulation game. The crypto market operates like a digital Wild West, lacking the regulatory oversight that traditional markets enjoy through agencies like the SEC and FINRA. This regulatory void creates fertile ground for market manipulation, particularly through sophisticated pump and dump schemes orchestrated on platforms like Discord and Telegram.

Large investors, known as ‘whales’, coordinate their actions by accumulating cryptocurrencies, generating artificial hype on social media, and waiting for smaller investors to drive up prices before selling their holdings en masse. It’s comparable to a rigged poker game where one player holds half the chips and can see everyone’s cards – these whale investors can dramatically influence market prices with single transactions. In 2024, we witnessed multiple instances where individual trades worth millions triggered significant price swings, impacting thousands of smaller investors who were left holding devalued assets.

3. The regulatory roulette. If market manipulation wasn’t enough to worry about, the regulatory landscape is like a game of musical chairs – nobody knows where things will land when the music stops.

Here’s what’s happening:

• China went from being a crypto mining powerhouse to banning it entirely
• The EU is rolling out strict new crypto regulations
• The US is still debating whether cryptocurrencies are securities or commodities

This uncertainty means what’s legal today might not be tomorrow. Imagine investing your savings in something that could become illegal or heavily restricted in your country next year.

4. The CBDC challenge. Here’s where things get interesting. Central banks worldwide aren’t just watching Bitcoin – they’re planning their own digital currencies (CBDCs). The implications? Huge.

Picture this: Your government releases its digital dollar, fully backed by the central bank. It’s stable, regulated, and integrated into the banking system. Suddenly, one of Bitcoin’s main selling points – digital money – has serious competition. China’s already testing its digital yuan, and other major economies may look to follow.

A smarter way to play the crypto game

If you’re intrigued by Bitcoin’s potential but worried about the risks, consider these approaches:

• Don’t bet the farm. If you decide to invest, make cryptocurrency a small portion of your portfolio – think 5% or less.
• Consider gaining exposure to the cryptocurrency sector through established companies involved in blockchain technology and related services rather than direct crypto investments. A prime example is Coinbase, a regulated cryptocurrency exchange platform that generates consistent revenue through transaction fees and services. While not without risks, investing in such companies offers a more stable approach since their value is backed by actual business operations and regulatory compliance rather than purely speculative trading.
• Consider dollar-cost averaging instead of going all-in at once. This helps reduce the risk of buying at the peak.

 The fifth perspective

The crypto world is undeniably thrilling – the wild price swings, the promises of getting rich quickly, the whole mystique of everything. But the reality is crypto isn’t for everyone. Whether Bitcoin ends up soaring to US$200,000 or crashing back down to US$20,000, the smart play is making investment decisions that align with your financial goals and comfort with risk, not the latest hype or FOMO. The best strategy is the one that lets you sleep soundly at night.

If constantly checking the Bitcoin price is giving you anxiety and stress, that’s a pretty good sign that you might want to reconsider your approach. Crypto can be a complex and volatile beast; it takes a certain stomach to ride the rollercoaster. Make sure your involvement matches up with your circumstances and temperament. There’s no shame in deciding crypto just isn’t your thing. The key is staying true to yourself without getting swept up in the craze. Play to your strengths and comfort zone, and you’ll be much better off in the long run.