A Bitcoin logo on the screen of a cryptocurrency automated teller machine (ATM) inside an Alza.cz store in Prague, Czech Republic, on Tuesday, May 17, 2022. Crypto companies have started to plan for a potential protracted market slowdown. Photographer: Milan Jaros/Bloomberg 
Bitcoin has gone from R828,000 per bitcoin to R1.6-million per bitcoin in the space of three weeks. This is a fabulous bounce and, like all bounces, the pressing question on everyone’s lips is this: Why on earth didn’t I buy bitcoin last month? No, just kidding. The key question is: Can it go any higher? Did I just miss out on the last great Bitcoin bounce?
When something goes up that fast, your instinct is that it will come down because of the first immutable law of the universe, which is that the world will always disappoint you, especially very soon after it hands you a gift. But it’s worth at least listening to the argument of the people who are now telling you “I told you so”, in case they actually have an argument.
And it might surprise you that they do.
But first, why did Bitcoin rise so fast? The most obvious answer is that the re-election of Donald Trump as US president boosted the price because of his campaign’s pro-crypto stance. The concrete promises include plans to establish a Federal Bitcoin Reserve and appoint industry-friendly regulators.
But there is more than just that, significant as it is. There has been a noticeable influx of institutional investments into Bitcoin recently, including UK pension funds and traditional fund managers. This is so much easier now with the advent of Bitcoin exchange-traded funds, which means the increasing investment of traditional financial institutions is now smoother and more visible.
The new financial acceptability of Bitcoin also contributes to the increase in total investments and as it increases, its acceptability increases further. The argument in favour of buying more bitcoin is simply that the cryptocurrency is proving its durability as a store of value. There is now $1.7-trillion invested in Bitcoin, which is about 17 times the value of South Africa.
In the words of American entrepreneur Michael Saylor, Bitcoin was considered a way to distribute value without needing a trusted intermediary. In fact, it’s turning out that bitcoin is a way of storing value without the need for a trusted intermediary. “All other investment categories degrade because of chaos, confusion, competition, inflation, politics and war. All other investments include counterparty risk, whether it be countries, corporations, currencies or creditors.” Clearly, he has a thing about the letter “c”. Obvs.
But the point is that Bitcoin is an asset class that shows growth without correlation to all other asset classes. For everybody asking about the use case of Bitcoin, Saylor answers, “The use case is you get to keep your money.” It’s long-term, digital capital preservation. “Bitcoin is alpha.”
Honestly, it’s heady stuff.
What about the counter-argument? The counter-argument, or at least one of them, comes from software engineer and writer Stephen Diehl, who wrote a book called Popping the Crypto Bubble. He is in the unenviable position of having to explain why the crypto bubble has not yet in fact popped. What has popped, of course, has been the price of crypto.
But he does make this point, writing in the FT. “Consider the historical irony: Bitcoin, conceived as a peer-to-peer electronic cash system that would eliminate the need for financial intermediaries, is now primarily traded through funds managed by the very intermediaries it was meant to circumvent.”
Two years ago, the collapse in crypto prices seemed to confirm what sceptics like Diehl had long maintained: crypto assets were a speculative bubble inflated by easy money and pandemic-era exuberance. But now, he argues, they are being boosted by another thing: financial acceptability.
But “the financial industry’s embrace of crypto represents nothing more than a perpetual talent for transforming speculative trends into fee-generating products”.
The problem with Diehl’s argument is that the implications of financial acceptability are enormous. Bitcoin now constitutes less than 0.4% of global long-term investment capital, or about 0.2% of total investment capital. If financial acceptability means investors want it to be a measly 1% of their holdings, you are still looking at a thumping increase.
Please don’t invest on my say-so, and please don’t withhold your investment on my say-so; I’m not an investment adviser qualified or otherwise. I’m just making the point that the nature of the debate around Bitcoin has changed pretty fundamentally. DM