The writer is chair of Rockefeller International
Once dismissed as fanatics, the bitcoin bulls must be feeling vindicated. They made an accurate call on the cryptocurrency’s potential for gains — witness the staggering rally under way — and were right, at least in part, for the right reasons.
When bitcoin was all the rage at the start of this decade, many serious investors and traditional economists spurned it as a useless fad — even a fraud. Their scorn, seemingly confirmed by its crash in 2022, persists today while the currency separates itself from the pack.
Back in 2021, bitcoin was often grouped alongside other favourites of the day-trading crowd, such as unprofitable tech and meme stocks. Today those other bubblets are trading on average at half their peaks, while bitcoin recently hit an all-time high. It is extremely unusual for a bubble to burst and then recover to reach new heights so quickly, and suggests that something real and sustainable is going on.
Bitcoin’s comeback is remarkable, as well, for defying the general shape of the current bull market, which is heavily concentrated in the Big Tech stocks. Investors have taken the tech heavyweights seriously throughout, perhaps even more so now that they are seen as the giants most likely to dominate the future of artificial intelligence. Bitcoin gets no boost from AI mania.
The bitcoin bulls have been proved mostly right about its prospects as a long-term investment — and, in this regard, as the king of the cryptos. Since the low point in late 2022, its price is up around 300 per cent, more than all but one (solana) of the other top 10 cryptos. Moreover, it is growing fast from a much larger base: with a market cap of more than $1.3tn, bitcoin is now three times larger than its closest competitor (ethereum). Of the 100 largest cryptos, five are at or near all-time highs — bitcoin and four others that are specks in comparison.
Sceptics doubted that bitcoin could ever be taken seriously while its price was swinging so wildly. But its volatility has been dropping sharply, according to Bloomberg, and is at historic lows — nearly five times less volatile than at the dizzy highs of the past decade. It is, though, still less safe as a currency than the dollar (which is seven times less volatile) or as an investment than gold (nearly four times less volatile).
The fundamental story has not confirmed the bulls’ case for bitcoin in every way. They expected that, lifted by its popularity among the young, it would become the new “digital gold”. That’s still a dream. Gold has been more than holding its own, trading at all-time highs and far above its fair value based on inflation expectations. To diversify away from the dollar, central banks worldwide are buying gold, not bitcoin, at a record pace.
More significantly, bitcoin is far from confirming the vision that it would emerge as a medium of exchange. A global index of “grassroots” crypto usage shows the adoption rate in general has fallen by about 60 per cent from the recent peak in 2021. Countries that are still rapidly adopting cryptocurrencies tend to be troubled ones with beleaguered national currencies, such as Ukraine and El Salvador.
Bitcoin accounts for less than 10 per cent of the transactions in cryptocurrencies worldwide. Some 70 per cent of bitcoin accounts have been dormant for a year, suggesting people are buying the currency to hold as an investment, not to use for purchases at Starbucks. In the few places where people use cryptocurrencies for commercial transactions, they are turning to stablecoins, which were designed to track hard currencies and trade at a steady price.
Nonetheless, trends favour the bulls. They had said that bitcoin would be propped up by the inherent limits on its supply. The output of bitcoin “mines” halves every four years, with the next cut coming in April. That is a big driver of the current rally.
Many big institutions now see the cryptocurrency as a legitimate investment. In recent years, they have been increasing their holdings at an average rate in the strong double digits. In January, following approval by the US Securities and Exchange Commission, 11 of them opened new bitcoin ETFs to the general public, and that market is on course to grow from $50bn now to $300bn in 2025.
Bitcoin increasingly looks more like an asset with staying power than a passing fad. Froth is a feature of any runaway bull market but for now it is the so-called fanatics, not the sceptics, who have good reason to celebrate. There is an old Wall Street saying for moments like this: only the fools are dancing, but the bigger fools are watching.