People mocked (in 2017) the bitcoin believers when its price scaled to $30,000 only to drop to $3,000.
Bitcoin has no “intrinsic value” (positive net asset value with a robust present value of future earnings), they said.
When bitcoin hit $64,000 (currently at $58,124 as of May 9), they reasoned, this is strictly just its “extrinsic value” of the “bigger fool theory” and that the scarcity (only 21 million bitcoins will ever be mined) cannot prevent its potential volatility and eventual collapse.
Bank of England Governor Andrew echoes a warning not to invest “unless you are prepared to lose all your money.” Even big economies like India and Turkey continue to ban cryptocurrencies.
From its launch in 2009 to 2017, bitcoin only attracted mostly the “retail” speculators anxious to flip it over at the first opportunity. It was also a time when the learning curve of the new blockchain technology was steep and there were barriers to easy entry on the platform to use. Banks were likewise generally hostile, after all, bitcoin would compete with their “fee-based” products. The lack of state regulatory infrastructure also discouraged many.
How did bitcoin rise and thrive in a new habitat that propelled its price to its all-time high?
First, the new “retail” market encompassed not just the rich but the ordinary millennials. The lockdown gave them time to study the market and to amass a bit of savings, partly from Federal stimulus funds. Cryptocurrency holders (74 percent) come from the ages 25-44. They also learned to better maneuver digitally and invest without passing through brokers.
The “Institutional” investors (even those with fiduciary obligations) saw the US government print more money amid so many bankruptcies and would likely fuel inflation and further erode their meager returns on bank placements. Though America-centric, it is this sector that primarily moved bitcoin to its dizzying heights unlike in the past. The “corporates,” on the other hand, also started to invest at least 2-5 percent of their balance sheet assets in bitcoins. Perhaps smaller countries with weak currencies also saw bitcoin as attractive.
Simultaneously, the celebrity-high net worth individuals like Elon Musk (2nd richest globally) publicly announced his $1.2 billion purchase of bitcoins which in no time ballooned to $2.1 billion. As did Mark Cuban, the sports franchise owner. This helped even second-layer cryptocurrencies to move Ether (1,200 percent gains year to date) and Dogecoin (360 percent rise year to date).
These new post-Black Thursday investors were all generally coming in for the long haul, not merely speculative (as was in the past), and their combined renewed interest provided liquidity to licensed exchanges and somewhat stabilized the market.
Many central banks also announced their plans to launch a cryptocurrency of their own and widened its regulatory reach and depth on the same- giving more comfort to investors in that they provided more clarity about the state’s position. Even private banks were no longer allergic to the use of bitcoins and told their valued clients so.
Should one, therefore, now be more bullish with bitcoin, which at the very least, will be the “dominant” cryptocurrency in the coming years?
Warren Buffett will never budge from his “long-term perspective” and “intrinsic value” formula in evaluating any investment proposal. The maverick Bill Gates once a Doubting Thomas, at least, now believes in many of the principles that govern bitcoins. And Musk, the bitcoin billionaire investor still cautions bitcoin investors “to be careful with your money.”
One analyst was bold enough to say bitcoin reaching a $100,000 value is within range. However, with the faster vaccine rollout and the global economy set to fly to a dramatic rebound, thereafter, will bitcoin, with its self-imposed limitation, still remain an attractive investor in the coming months?
Or is it just a pandemic phenomenon that will dissolve with the resolution of the COVID crisis?
(Bingo Dejaresco, a former banker, is a financial consultant, media practitioner and book author. He is a Life and Media member of Finex. His views here, however, are personal and do not necessarily reflect those of Finex. [email protected])