Bitcoin (BTC) moved back above 60,000 against the US dollar (USD) yesterday and looks set to challenge the all-time high of just under 70,000 over the next few days. In 2014, I wrote positive articles about the OG cryptocurrency, and back then, the question was whether or not bitcoin could hold above $500, a level that seemed to be a ridiculously high valuation for many people.
The vehement critics of bitcoin included, and still include, some very smart people, so what did they get wrong? How could people whose opinions were sought on many subjects and who had histories of making good investment and business decisions were talking about Ponzi schemes and tulip bulbs for a decade as BTC gained around 12,000%? More importantly, could they get the last laugh? Could it be that bitcoin is in a bubble, even if it is one that has been inflating for a decade or so?
Looking back, it now seems that the most common reason for getting bitcoin so wrong was a lack of imagination. It takes some mental gymnastics to get your head around the idea of a “currency” not issued by a national government and that has no physical form, let alone one that stands the principles of an inflationary economy on its head. It is quite possible to be “smart” but narrow minded, particularly when the new things you are considering represent a threat to your livelihood. Maybe that is why most big bank CEOs exhibited a blind spot when it came to bitcoin back then and have stuck to their evidently incorrect views, even as the institutions they run have, somewhat hypocritically, set up crypto trading desks to make money off of this thing that is doomed to fail.
Another factor that I have observed influencing the vocal critics of bitcoin is the politicization of the subject. Understandably enough, the idea of a non-governmental currency was embraced early here in the U.S. by the libertarian right as something that would “get the government’s hands off your money,” resulting in many people who don’t share the views of that cohort rejecting the idea out of hand. Having worked with several small, international crypto companies over the last ten years, however, I have noticed that association with the political right is not the same everywhere. In fact, in Europe, Africa and elsewhere, bitcoin is often embraced by the far left anarcho-socialist types because it takes money out of the hands of the big banks. It is them, not the government, that they see as the ultimate enemy of the people.
That inability to see beyond the borders of the USA shows itself in another argument that I have heard many times against bitcoin. We have debit cards, Venmo, Zelle, almost instantaneous wire transfers and other things that compete with the notion of bitcoin having an advantage as it is freely and relatively quickly transferrable. One could argue that some of those things were a response to the existence of bitcoin, or were coming anyway given the absurdity of a bank holding your funds for three days before crediting your account when you pay in a check, but the strongest argument against the “not needed” argument is that it comes from a completely U.S.-centric world view.
In that view, the relative stability of government issued money and access to sophisticated, again relatively stable, banks lead the narrow minded to the conclusion that bitcoin will fade away because it doesn’t meet a need. Tell that to the people of Nigeria right now, or to others whose governments have destroyed the value of their currency for short-term political gain in the past, or to the millions around the world who are either unbanked or being exploited by banks. Or tell it to the Afghan women whose education was paid for by bitcoin gathered by western women looking for a way to send them money that was out of the control of their Taliban empowered husbands. Just because you are comfortable in your world of western privilege doesn’t mean that change isn’t needed in some parts of the world.
Those are the stories that have powered bitcoin’s rise. Yes, digital currency is a favorite of international cybercriminals, but that is really not a reason to hate it. After all, the US dollar has been in that role for a century or so. Cash is untraceable and dollars are spendable just about everywhere. Criminals therefore frequently asked for payment in used dollar-denominated bills, and still do, but I haven’t heard anybody calling for a ban on dollars. Or should we ban gold or diamonds, or anything else that has been used for illicit purposes? I have had several people tell me that crypto is “different” in that regard, but nobody has ever been able to say why.
As for what is to come, it looks almost inevitable that BTC/USD will continue moving higher for a while, but from a trading perspective I would be very cautious about buying in around here. A large part of this recent surge is down to the “halving” that is coming in April. When bitcoin was created, the protocol that created it designated certain times when the reward offered to bitcoin’s miners for solving the massively complex mathematical problems on which bitcoin is based were cut in half. That reduces supply, obviously, and has been the catalyst for sharp rises in value in the past, at least as the halving date approached. However, there have been three previous halvings, and in two of them, bitcoin’s value has fallen in the immediate aftermath before strengthening a few months later. There is presumably a “buy the rumor, sell the fact” thing going on and the increase in institutional crypto trading since the last halving in 2020 makes it likely that the same thing will happen this year, only more so.
So, while it is logical to expect BTC/USD to keep moving higher for a while, probably to new highs around $75-80K, there will be a correction before too long. And given how crowded the long BTC trade has become, it could be a sharp one. There is no knowing the future of BTC/USD, but one thing is for sure: When and if a big drop comes, the same “experts” will be trotted out in the financial media to once again tell us that bitcoin is all a crazy bubble and a Ponzi scheme and is “going to zero.” They have been wrong for the last ten years and will continue to be wrong, but for all the reasons above, they will find a willing audience.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
