Bitcoin (BTC-USD), the dominant cryptocurrency, surpassed $42,000 Monday, reaching a high for the year and seemingly moving past a recent array of scandals that have weighed heavily on digital assets.
Investor sentiment has turned more optimistic in recent weeks, sending the value of digital tokens and shares of crypto companies climbing. Backers are particularly interested in the potential for regulators to approve a crypto exchange-traded fund, giving investors greater exposure to digital assets without the full risk of owning them directly. The Securities and Exchange Commission is expected to weigh in on the applications next month.
So far this year, bitcoin has risen more than 150%, lifting other tokens and players alongside it. Ethereum, the next largest cryptocurrency by market cap, has advanced more than 80%.
Gains are also flowing to the sector's publicly traded companies. Coinbase (COIN), which benefited tremendously during the heady trading days of the COVID lockdown, is enjoying another moment in the sun. The platform's stock price has ballooned more than four times in value from the start of the year. And Marathon (MARA), the digital asset company that mines cryptocurrencies, has more than tripled its stock price year to date.
Markus Thielen, head of research at DeFi Research.com, recently told Yahoo Finance Live that ETF approvals may push the price of bitcoin near $60,000, as investors move some of their funds into crypto. Since institutional investors allocate hundreds of billions into ETFs, even moving a small percentage of those funds would translate to meaningful gains, he said.
"There's around $120 billion US dollars in precious metals ETFs in the US, — so that means in gold and in silver — and if you just move 10-20% of those and shift them over into Bitcoin you have something in the range of like $25 billion of inflow," Thielen said.
An increasingly popular belief on Wall Street that the Fed is likely finished with its interest rate tightening campaign, as well as pent-up demand, are also driving the run-up in crypto, he said.
Crypto's rally late in the year also highlights what industry leaders say is the sector shedding its troubled past. Last month, Changpeng Zhao, the founder of the world's largest crypto exchange, Binance, pleaded guilty to federal money-laundering charges and resigned as CEO. The plea came soon after the high-profile conviction of FTX co-founder Sam Bankman-Fried.
Last month, a Manhattan federal jury found Bankman-Fried guilty of defrauding his customers, investors, and lenders, concluding a dramatic fall for the 31-year-old entrepreneur. But as he presided over the largest crypto collapse in history, his conviction took on a deeper meaning, standing in for what critics saw as the industry's propensity for scamming and illicit activity.
While Bankman-Fried faces even more legal battles, the markets are already moving on.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.