Dan Coatsworth, investment analyst at AJ Bell, comments: “Bitcoin has set another record high, exceeding $122,000 for the first time as ‘Crypto Week’ gets underway in the US. This is a banner to describe a series of debates by US lawmakers that could lay the foundations for a regulatory framework on digital assets. Donald Trump has talked about making America the crypto capital of the world, and now the market is hoping those words become reality.
“The crypto’s price movement implies that investors and traders are expecting something significant during Crypto Week, as bitcoin has now risen by nearly 10% in just five days. This implies some FOMO (fear of missing out), a trend we’ve seen plenty of times in the past when bitcoin hit the headlines. Crypto believers are convinced digital assets are the future of finance. While there is certainly momentum in terms of investor, government and corporate interest, it is not a slam dunk. There are still more questions than answers.”
What are US lawmakers discussing this week?
The Clarity Act – aka The Digital Asset Market Clarity Act. This aims to establish a regulatory framework for digital assets including cryptocurrencies.
The Genius Act – aka The Guiding and Establishing National Innovation for US Stablecoins Act. This aims to create the first federal regulatory framework for payment stablecoins, which are cryptocurrencies whose prices are pegged to another currency. The US Senate last month approved the bill, an event that is already considered to be a major milestone in the evolution of crypto. While the Act is still subject to consideration by the House of Representatives, crypto fans are hopeful it will sail through. The Act is significant as it is designed to enable private companies to issue stablecoins, and Amazon and Walmart have already indicated a desire to be among the first issuers.
The CBDC Act – aka The Anti-CBDC Surveillance State Act. This aims to stop the Federal Reserve from issuing a central bank digital currency.
Why else are investors buying bitcoin?
“Despite ongoing uncertainties around trade tariffs, economic growth and geopolitical issues, investors and traders appear to be hedging their bets by piling into bitcoin. Even though equities have been moving higher as markets appear to shrug off the latest tariff news, investors know they cannot rule out Donald Trump taking a completely new direction with trade discussions and doing something out of the blue. There are also growing concerns about US national debt, which is high and set to go even higher.
“Bitcoin is seen as a portfolio diversifier and a ‘just in case’ method of insurance. While bitcoin is driven purely by speculation, interest continues to grow in the cryptocurrency. Gold would have historically been the classic portfolio hedge and bitcoin is now muscling in on that game.
“There are now various investment funds that track the bitcoin price and that gives investors more choice in how they get exposure. It’s made it a lot easier to take a position and that has helped to drive up demand and push up the bitcoin price.”
Risks of putting money into crypto assets
“Cryptocurrencies are extremely volatile and they are not suitable for everyone. Research from the FCA in 2023 found 46% of new investors hold crypto assets. Many were motivated to invest in high-risk assets for emotional reasons, such as wanting some excitement or for a novelty factor. This rush to high-risk investing has a worrying underbelly to it, with half of those buying these assets having at least one characteristic of financial vulnerability, or no or low appetite for investment risk.
“The study also found that three in five people who have 25% or more of their investible assets in high-risk investments say that a significant investment loss would have a fundamental, negative impact on their lifestyle – highlighting a clear mismatch between their investment holdings and their risk tolerance.
“Cryptocurrency prices are driven by speculation. In contrast, stocks can be analysed by looking at profits and cash flow; bonds can be analysed by looking at balance sheets and more; even gambling on horseracing can be analysed to a point by looking at past form over certain conditions. Crypto assets involve a huge amount of finger in the air guesswork, and they are at the top of the risk spectrum for trying to make money.”
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