Last month, Bitcoin (BTC 0.59%) reached a new all-time high of $111,970. Even after a small pullback, the leading cryptocurrency is still up 13% this year, while the S&P 500 has gained just 1.6%. Going back even further, Bitcoin has returned an impressive 990% during the past five years.
When a cryptocurrency goes on a tear, investors and prospective investors want to know why. And, even more importantly, they want to know if the gains are likely to continue. In Bitcoin's case, there are a few key reasons it has been doing so well lately.
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1. A crypto-friendly political climate
President Donald Trump was pro-crypto and pro-Bitcoin during his campaign, even saying that he wanted the U.S. to be "the Bitcoin superpower of the world." He was expected to usher in a more crypto-friendly climate if elected, and so far, he has done just that.
Under the Biden administration, the Securities and Exchange Commission (SEC) had gone after many of the major crypto companies and exchanges. Trump's pick for SEC Chair, Paul Atkins, is known for supporting cryptocurrency. Since Trump has taken office, the SEC has ended lawsuits with Coinbase Global (COIN 3.96%) and Binance and ended investigations into OpenSea, an NFT marketplace; and Uniswap, a decentralized exchange.
The Trump administration also announced the creation of a Strategic Bitcoin Reserve in March. Just like countries stockpile gold, foreign currencies, and other valuable assets, the federal government is stockpiling Bitcoin. Arizona and New Hampshire have followed suit with their own Bitcoin reserves.
Government support for Bitcoin and cryptocurrency as a whole should be good for the industry, as it helps further legitimize cryptocurrencies as an investment. Since Election Day, Bitcoin has hit multiple all-time highs and is up 54% overall.
2. It's a hedge against a weak U.S. dollar
The U.S. dollar has been losing value, with the U.S. Dollar Index (DXY) down about 9% on the year. Import tariffs, the possibility of a trade war, and worries of a recession have all taken their toll.
When the dollar declines or there's a period of high inflation, investors often look for alternative assets to use as stores of value. Gold has long been a popular choice, and in recent years, Bitcoin has been called digital gold. There's a limited number of Bitcoin available -- the maximum supply is capped at 21 million coins. This gives it a built-in scarcity that traditional currencies don't have.
It's hard to predict currency fluctuations or when the U.S. dollar will bounce back, although a U.S.-China trade deal would probably help. This may not be a long-term tailwind for Bitcoin, but it is a benefit at the moment.
3. It's increasingly popular with institutional investors
While institutional investors used to be wary of investing in Bitcoin, that's no longer the case. The SEC approved the first Bitcoin spot price exchange-traded funds (ETFs) in January 2024, opening the door for more institutional adoption. Those U.S. Bitcoin ETFs had inflows of $5.2 billion in May and have over $125 billion in combined assets under management (AUM) at the time of this writing.
Like government support, institutional investors help legitimize Bitcoin, and the amount of money they invest can also drive up the price. Bitcoin's value has already jumped by 130% since the approval of Bitcoin ETFs, and cryptocurrency will likely become more and more mainstream going forward. A January survey by EY Parthenon and Coinbase found that 83% of institutional investors were planning to increase their digital asset allocation in 2025.
Will Bitcoin continue to surge?
All the factors that have contributed to Bitcoin's latest bull run are still in place. The political climate is and should remain positive toward cryptocurrency. Banks, hedge funds, and other institutions are investing in Bitcoin. The U.S. dollar hasn't recovered yet, although that could change at any time.
This doesn't mean Bitcoin is a surefire investment. Far from it -- Bitcoin is risky, and you could make a compelling argument against it. Bitcoin has limited utility, transactions are slow and relatively expensive, and it doesn't produce anything of value like a business does. People invest in the hopes that the price will go up.
But as it's demonstrated over the years, Bitcoin can deliver incredible returns, and it's the most successful cryptocurrency by a wide margin. Stocks are still a safer choice, but Bitcoin is a good alternative investment for anyone who wants digital assets in their portfolio.
