Bitcoin isn’t a currency, but a bet on skepticism

The conventional case for bitcoin is easy to dismantle

  
A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken November 19, 2020.

A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken November 19, 2020.

REUTERS/Dado Ruvic/Illustration

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

NEW YORK  - Bitcoin is down, but not out. Even after a recent fall, the cryptocurrency’s price has jumped over 260% in the past 12 months, topping $40,000 earlier in January. There are many reasons why that isn’t rational. But if the market can remain irrational – and it probably can – even a bitcoin skeptic can be bullish.

The conventional case for bitcoin is easy to dismantle. First, there’s the idea that its fixed supply makes it a safeguard against the rampant issuance of real-world currencies. Yet bitcoin’s price roughly doubled in under a month after it hit $20,000 in December; monetary easing started way earlier. Then there’s the increased ease of trading through retail apps like Robinhood. That, though, could facilitate a similarly rapid plunge. It’s also a lousy medium of exchange: Visa can process thousands of transactions per second, but the bitcoin blockchain can handle under ten, according to many industry experts.

A better reason to be positive on the cryptocurrency is as a gauge of long-term fear. Concerns about the value of fiat currency may be misguided, but the worried can easily find reasons to be more so. The supply of money known as M2 has increased by about a quarter since the beginning of last year in the United States, according to the Federal Reserve. Policymakers and academics disagree on whether this is harmful, but it, along with growing deficits, will generate years of public hand-wringing, possibly creating a bitcoin “bid.”

Distrust in government more generally is the other trend that may prolong the rise. Trust in the U.S. government has been near record lows below 30% for years, according to Pew Research. And China, South Korea, and Japan all reported declines in government trust last year, according to the Edelman Trust Barometer. Canada, the United Kingdom, the U.S. and Mexico’s mandarins all gained public trust in early 2020, the barometer suggests – and then went into reverse.

There’s no mathematical relationship indicating a certain level of mistrust should equate to a calculable value for bitcoin. But the mix of low faith in policymakers and low interest rates could push more punters into crypto, especially if this unease grows. Bitcoin is unconvincing as a currency and can’t yet be considered an investment, but it might be a good bet on a mistrustful world.

CONTEXT NEWS

- Bitcoin opened above $20,000 on Dec. 17, and then rose to around $40,000 by Jan. 8. The cryptocurrency’s price had fallen by around 20% by early trading on Jan. 22, with significant volatility during the intervening time. The price fell below $5,000 in March 2020, and was below $4,000 in early 2019.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by John Foley and Amanda Gomez) ((anna.szymanski@thomsonreuters.com; Reuters Messaging: anna.szymanski.thomsonreuters.com@reuters.net))

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