First published in the Daily Maverick 168 weekly newspaper.

Today the price of one bitcoin is about $44,770, or R655,674. It rose steadily through 2020, gaining pace from November, and is now up about 352% since January last year. But the market was given an electric shock this week with the news that carmaker Tesla had invested $1.5-billion in bitcoin, making it the biggest investment by a mainstream corporation into the popular cryptocurrency. In addition, the company has plans to accept the digital currency as payment for its products, joining the likes of Microsoft, AT&T and Pizza Hut.

Of course, the recent price jump reignited old fears that bitcoin is subject to speculation – Elon Musk has been punting bitcoin all year – and market watchers are now predicting that what we are watching is a repeat of the 2017 bubble. A crash, they say, is inevitable.

While there is no denying that the price is enormously volatile and we may see a few more wild swings in value, bitcoin is here to stay, in my view. The world has changed since the first lines of code were committed to the bitcoin blockchain on 3 January 2009. This was a few months after the publication of founder Satoshi Nakamoto’s white paper and the birth of a new finance counter-culture. It was also a few months after the collapse of Lehman Brothers, which was the climax of the subprime crisis that triggered a global recession.

In response to the Great Financial Crisis, governments around the world flooded markets with money created by central banks. A decade later Covid-19 and the subsequent risk of economic collapse spurred central banks to release more money into the system.

Increasing the supply of money erodes its value and leads people to look for inflation-resistant assets to hold. In this climate, bitcoin has become a hedge against looming inflation and poor returns on other types of assets. Cryptocurrencies have thus come to be seen as the “digital gold” of the Fourth Industrial Revolution.

Whether critics like it or not, bitcoin’s status as an asset class is now much harder to dispute. For a long time, institutional investment in bitcoin was limited by strict investment mandates and regulatory compliance.

But this is changing and 2020 was the year in which the likes of JP Morgan Chase, the largest bank in the US and once a bitcoin detractor, ARK Investment Management, Tudor Investment Corporation and Rothschild Investment Corporation dipped their toes into bitcoin investing. Grayscale, a listed security that owns and tracks different cryptocurrencies, saw record inflows last year. It kicked off 2020 with $2-billion in assets under management and ended with more than $20.2-billion, driven by demand from institutional investors such as hedge funds and pension funds.

The growing institutional interest makes it clear that unlike the 2017 bubble, when there was a lot of excitement based on little mainstream adoption, this time there’s more substance to cryptocurrency price rises.

For one, digital money is coming. This trend has been accelerated by the surge of interest in online shopping together with cashless payments that occurred during the Covid-19 lockdowns.

Writing in The Conversation, Jason Potts and Ellie Rennie, respectively Professor of Economics and principal research fellow at RMIT, a public research university in Australia, say that central banks – including those of the US, the EU, Japan, Switzerland and England – are pushing to develop their own digital currencies. Leading the charge is the People’s Bank of China, which is piloting a digital renminbi.

Another point in cryptocurrencies’ favour is the rate at which the technology is evolving. One criticism has been that mining these currencies is hugely energy-intensive. However, Ethereum, in particular, has embarked on a technical upgrade that will do away with energy-intensive computing processes.

The researchers add that whole new layers are being developed to enable the use of blockchain technologies in financial markets. The latest is decentralised finance that uses blockchain to build completely digital and automated markets. These include decentralised exchanges that operate without traditional intermediaries such as stock markets or banks. This is only possible using blockchain infrastructure – and cryptocurrency.

Considering it is only 10 years old, one can argue that bitcoin is steadily becoming part of the establishment. Which ironically is contrary to what it was intended to be.

Originally, bitcoin was money with a philosophy: instead of a central bank, it had programming and a white paper, both of which suggested scepticism and a lack of trust in traditional financial institutions and the monetary system itself.

While Nakamoto collaborated with bitcoin developers until 2010, he (or she) has since vanished. And as the digital currency took off, it is becoming another investment vehicle for the financial system. Ten years later, bitcoin is part of the system it was meant to overthrow. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.