The price of bitcoin went above $40,000 for the first time since June when a China-led bearish sentiment pushed prices below $30,000.
Analysts who monitored the price movement from Wednesday evening to Thursday, said bitcoin crossed $40,000 a total of 18 times within a 24-hours time frame.
The price of the largest cryptocurrency by valuation has hovered within the range of $30,000 and $35,000 in the past two months as crypto miners exited a hostile business environment in China. Authorities had clamped down on mining activities claiming it was part of measures to reduce high carbon emissions exacerbated by high energy demanding mining activities.
As of 2018, China was responsible for 65 percent of cryptocurrency mining in the world. Prior to 2021, mining operators have not prioritised the reduction of the environmental impact of their activities. Reports have shown that cryptocurrency mining consumes a lot of electricity, many of which were generated from fossil fuel and coal. Even Tesla, whose founder Elon Musk had been a chief supporter of the market, temporarily withdrew its support until the issue was addressed.
Read also: Is bitcoin trading still profitable in 2021?
Stakeholders in the industry, however, said the energy consumption criticism was mostly due to ignorance of the extent of work done in leveraging renewable energy in mining activities.
Miners from China that relocated from China to countries like the United States have now intentionally invested in renewable energy sources to power their plants. Several states in the US are offering miners cheap renewable energy to power their farms.
The increasing shift to renewable energy sources is, among other things, largely responsible for the recovery of the price of bitcoin and other cryptocurrencies. As of the time of writing this article, bitcoin (BTC) was exchanging hands for $40,142. Ethereum (ETH) was selling for $2,310, Binance (BNB) went for $314.
The price surge is also benefiting from renewed confidence in the market by large institutional investors. Tesla, for example, said it is most likely to accept bitcoin as payment but on the condition that digital currency mining and associated operations introduce more renewable energy into the process. Specifically, Elon Musk wants to see at least 50 percent renewable energy used and make sure the figure is on the upswing.
The biggest news for the market however, may have come from US financial institutions. Goldman Sachs, on Wednesday, said it has filed an application to offer a defi-linked ETF. The defined ETF is called “Goldman Sachs Innovate Defi and Blockchain Equity ETF,” and it would seek to provide exposure to these technologies for regulated institutions. The performance of the fund would be linked to the Solactive Blockchain Technology Performance-Index.
Other notable institutions that are now invested in Blockchain Technology include companies like Nokia, Alphabet, IBM, Microsoft, and Overstock.
Goldman Sachs’ announcement however, would be the first ETF that aims to capitalize on the popularity that the defi sector has experienced this year. The financial institution has reportedly been courting the cryptocurrency sector recently, having partnered with Galaxy Digital to provide bitcoin futures products.
JP Morgan also recently reportedly became the first major US bank to provide all wealth-management clients with access to bitcoin and other cryptocurrency funds.
Advisors in JPMorgan’s $630 billion wealth management division can now accept orders to buy and sell five crypto products including Grayscale’s Bitcoin Trust, Bitcoin Cash Trust, Ethereum Trust, Ethereum Classic products, and Osprey Funds’ Bitcoin Trust.
Nonetheless, analysts are cautious about a bullish run. One of the reasons is that miners may be back in business outside China, it takes a lot more time to mine a single bitcoin which impacts on the profits they make.
As hashrate increases, so does the difficulty of mining Bitcoin. Bitcoin hashrate now stands at 100 million terahashes per second (TH/s), which means that 100 million trillion calculations are made every second while trying to mine for Bitcoin.
“When Bitcoin is easier to mine, it means that less energy is being used, which, in turn, means the process becomes cheaper for miners. They are able to mine more with the same computational power and increase the chances of hitting gold — or, in this case, Bitcoin,” writes Shivam Vahia, a cryptocurrency analyst.
Bitcoin’s hash rate determines the total computational power required to mine a Bitcoin.
The higher degree of difficulty leads to longer mining cycles, which in turn results in higher energy bills and lower profit margins, which is a disincentive for miners.