In March 2020, before the pandemic fully closed its grip on the economy, the world's leading cryptocurrency, bitcoin, was hanging around $5,000 per coin. That's well below the 2017 peak of nearly $20,000, but not too shabby for a digital asset with limited monetary uses outside of buying, holding, and hoping the price would go up. Luckily for investors, it did go up — a lot.
Bitcoin's rise accelerated in spring of last year as COVID-19 spread across the U.S., hitting $30,000 in 2021 and reaching an all-time high of more than $63,000 in April.
The price dipped to around $55K in the weeks since, but a number of big-name investors are banking on higher valuations to come. The Winklevoss twins, famed investors who own 1 percent of all bitcoins, said the cryptocurrency is headed for $500,000. Bobby Lee, co-founder and former CEO of crypto exchange BTCC, told CNBC he predicts it will hit $100,000 over the summer.
The rally hasn't discouraged committed bitcoin bears, however. Berkshire Hathaway Vice Chairman Charlie Munger in an annual meeting on Saturday called bitcoin “disgusting and contrary to the interests of civilization," even as his boss Warren Buffet demurred.
Bitcoin isn't the only cryptocurrency that's rallying. Ethereum, the second-largest cryptocurrency by value, hit an all-time high of $3,400 this month. Even dogecoin, which started as a joke, has ballooned with the prodding of Tesla CEO Elon Musk on Twitter.
What's behind this cryptocurrency boom? The answers are numerous, and in some cases highly debatable, but a closer look at bitcoin's experience during the pandemic reveals a handful of major developments that have helped push the OG cryptocurrency to new heights.
During the 2017 rally, which was followed by a brutal slump, bitcoin was still dominated by retail investors and crypto-enthusiasts who were committed to the very idea of a decentralized financial asset, regardless of its ups and down. Over the past 12 months, its appeal has broadened to major companies, hedge funds, and high net-worth individuals.
Leading the pack was MicroStrategy, a market analytics firm that converted $425 million worth of cash in its treasury to bitcoin late in the summer of 2020, saying that it plans to acquire more.
"We successfully raised more than $1 billion of additional capital in the quarter to expand our bitcoin holdings, which now exceed 91,000 bitcoins," CEO Michael Saylor said in a news release. "We will continue to acquire and hold additional bitcoin as we seek to create additional value for shareholders.”
Tesla, meanwhile, has racked up $2.5 billion in bitcoin and now accepts it as a form of payment. The company reported $101 million in profits from bitcoin trading in the first quarter.
Even JPMorgan — where CEO Jaime Dimon has been publicly skeptical about crypto — has announced that it's preparing to offer an actively managed bitcoin fund to certain clients. This marks a shift away from the passive funds currently on offer from Pantera Capital and Galaxy Digital. Both types of funds pitch themselves as an easy entry point for investors.
In response to this growing interest, a whole cottage industry is cropping up to support institutional investors. Fidelity Investments in April launched an analytics platform for tracking digital assets called Sherlock that offers in-depth market and blockchain data.
“It’s been exciting to see the tremendous growth in the digital assets data space over the past few years, and while the market is maturing rapidly, we’ve heard from institutional investors that there’s still a need for a comprehensive and accessible data solution,” said Kevin Vora, vice president of product management for the Fidelity Center for Applied Technology.
Notably, the platform will soon offer real-time data on cryptocurrency derivatives — an important but controversial development that is driving the bitcoin rally in its own right.
Just look at some of the big names piling into the space.
Investment giant BlackRock, which oversees $8.7 trillion in assets, added bitcoin futures — contracts to buy or sell the cryptocurrency at a specific date in the future — as a potential investment for two of its major funds back in January.
CME Group, the world's largest financial derivatives exchange, launched bitcoin derivatives back in 2017 but this year announced that it's expanding its offerings to "micro bitcoin futures," which are one-tenth the size of one bitcoin and can be settled in cash. The offering is designed to attract different types of market participants, such as sophisticated traders and institutions.
Overall, the volume of bitcoin futures has accelerated since the beginning of the year, hitting a high of $2.1 trillion in March, according to The Block, an analytics platform.
Whether this bodes well for the cryptocurrency in the long-term is open for debate, but some believe it's a crucial component to driving mainstream and institutional support, as well as helping the financial market around bitcoin mature.
Economist and Yale University professor Robert J. Shiller wrote in a New York Times op-ed that the lack of a bitcoin futures market was one reason the bitcoin market was so volatile in 2017.
"The academic literature tells us that volatility of an underlying asset often falls after the establishment of new futures markets for it," he wrote.
At the same time, he added, a futures market doesn't clamp down on investor excitement, which can potentially cause volatility and asset bubbles.
The widespread adoption of bitcoin across various investment and payment platforms has played a role in building up support among smaller investors.
In addition to popular investing apps such as Robinhood, a number of companies have emerged that pitch themselves as making crypto-investing safer and more convenient.
One of them, Invstr, announced this week that it's allowing users to invest in cryptocurrencies in all 50 states and is working with Vast Bank to secure and store these investments.
"For many people, investing in cryptocurrencies is a big leap of faith," said Invstr founder and CEO Kerim Derhalli. "Our partnership with Vast Bank and leveraging Coinbase’s exchange platform reduces the perceived risk of investing in cryptocurrencies and should encourage many more people to take the plunge for the first time.”
On the payment side, Coinbase, a leading crypto-exchange, now allows users to buy cryptocurrency using their PayPal accounts.
Payment app Venmo, likewise, is allowing users to buy and sell crypto, with the goal of demystifying a process that many still don't understand.
"Our goal is to provide our customers with an easy-to-use platform that simplifies the process of buying and selling cryptocurrencies and demystifies some of the common questions and misconceptions that consumers may have," said Darrell Esch, senior vice president of Venmo.
Payment processing companies such as MasterCard and Visa have also helped validate cryptocurrency, and bitcoin in particular, with partnerships with emerging bitcoin rewards cards, which provide cash-back guarantees in bitcoin.
"Back in 2017, there were very few services that allowed you to get bitcoin," said Will Reeves, CEO and co-founder of Fold, a debit card that offers bitcoin rewards. "There were things like Coinbase, which are crypto-native companies, but now we're seeing incumbents in the payment industry like Visa, PayPal, and others that are now supporting companies like Fold."
He pointed out that 250,000 people have signed up for a Fold debit card. "Every time those users swipe their card, bitcoin is purchased, which creates massive buying pressure," he said.