Cryptocurrencies such as bitcoin have lately been on a wild ride.
Bitcoin hit above $100,000 for the first time last month after more than doubling in price last year — and analysts believe bitcoin and other cryptos could see another game-changing year in 2025.
To help explain why bitcoin investors are so excited, here are three key things to watch and why critics are so concerned.
Could bitcoin see another big surge?
That's what many analysts believe. A recent CNBC survey showed several experts predict bitcoin hitting $200,000 this year.
There are reasons for the optimism. A big one is that bitcoin is becoming more mainstream after the Securities and Exchange Commission (SEC) reluctantly approved investment funds that track the price of bitcoin early last year.
These exchange traded funds, or ETFs, tend to be popular with regular investors, allowing them a simpler way to get exposure to bitcoin without having to shell out six figures for a single bitcoin.
The bitcoin fund launched by BlackRock became one of the most successful ETFs ever after amassing over $50 billion in assets last year.
There's another major reason for why bitcoin investors are so optimistic: the return of Donald Trump to the White House.
Will Trump deliver on his crypto promises?
During the 2024 presidential campaign, Trump made one big promise to crypto investors: to turn the U.S. into the "crypto capital of the planet."
Trump is not president yet, but he's delivering on one key aspect of his promise: picking regulators and policymakers who are expected to be far friendlier to crypto interests (including his own family, given that he and his two sons are involved in a crypto venture).
That would mark a sea change from the Biden administration, which took a far more skeptical approach to cryptocurrencies.
The SEC, led by Gary Gensler, took aggressive enforcement action against key crypto players such as Coinbase as part of a legal battle to get them to comply with Wall Street regulations.
But investors are hoping Wall Street's next market cop will take a far different approach after Trump picked Paul Atkins as his SEC head.
Atkins, the CEO of a consulting firm with crypto clients, is a former SEC commissioner who is known as a strong backer of cryptocurrencies.
Trump also appointed the nation's first crypto and artificial intelligence czar, the prominent venture capitalist David Sacks, who is expected to help shape friendlier policies to both sectors.
The next Trump administration would be working with a Republican-controlled Congress.
Rep. French Hill, R-Ark., is the new chair of the House Financial Services Committee. A former community banker in his home state, Hill has advocated for policies that help develop crypto and AI, making him a potentially powerful ally to the incoming Trump administration.
The prospect of friendlier legislation though has many crypto experts concerned, including Carol Alexander, a professor at the University of Sussex who is known for her expertise on digital assets and her successful track record forecasting the price of bitcoin.
Alexander worries that professional traders could take advantage of and benefit at the expense of regular investors, comparing it to a soccer game between two teams without a referee.
"We have to regulate the space," she says, calling the move toward a friendlier legislative environment for the crypto industry "a step in the wrong direction."
Could the U.S. launch a bitcoin strategic reserve?
Trump made another promise to crypto investors that could prove a game changer for the industry if fulfilled: that the U.S. would start "a strategic national stockpile" made up of bitcoin.
In a speech at a crypto conference in Nashville in July, Trump said the government could start the stockpile with the bitcoin tokens it has seized from various bad actors. The U.S. is believed to hold around 200,000 bitcoin tokens, worth over $19 billion at current market prices.
The crypto industry — and some lawmakers — would like Trump to go even further, starting a strategic bitcoin reserve. That would mean the government would actively buy and sell bitcoin as part of the way the government manages its resources.
It would be similar to the way the government buys and holds oil in its Strategic Petroleum Reserve, releasing barrels at times of energy emergencies.
Sen. Cynthia Lummis, R-Wyo., introduced legislation to create such a reserve. Last year, she proposed that the U.S. government buy 200,000 bitcoins annually for five years until it hits 1 million, or 5% of the total supply of bitcoin.
Proponents of a stockpile or reserve believe such a fund would bring big benefits, including tying the U.S. strategically to the growth of bitcoin and giving the government scope to use bitcoin gains to pay down the country's large debts.
However, there are major questions about how the U.S. could legally start such a bitcoin fund, and many critics warn of serious consequences since bitcoin is notorious for its volatility and would directly expose the U.S. government to any sharp losses.
Many critics also believe that having the U.S. start a strategic bitcoin reserve would give legitimacy to an asset that they say has no actual purpose except as a speculative investment.
Whether the U.S. ends up launching such a fund remains to be seen. For now, crypto investors are giddy — and hopeful bitcoin's golden moment stays awhile.
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