Bitcoin: A new mania for digital currency

Bitcoin: A new mania for digital currency

 Bitcoin’s spectacular rally in 2020 mirrors the dynamic behind stocks like Tesla, said Paul Vigna and Anna Hirtenstein in The Wall Street Journal. “Investors keep pushing higher with little regard for fundamentals.” Created in 2009 as “a form of money that exists only digitally,” Bitcoin was designed to have “a fixed supply,” making it resistant to inflation. In practice, however, it’s become a volatile magnet for speculators. It traded as low as $3,867 in March, a 60 percent drop from the beginning of the year. This week, it was back up over $19,000, beating the record set before a crash in 2018. 

The involvement of major Wall Street names like Paul Tudor Jones and Stanley Druckenmiller has emboldened the Bitcoin bulls, who argue that the so-called cryptocurrency industry is “better prepared” now for sustained success. Mainstream financial platforms like Square and PayPal have also started “catering to interest in crypto trading,” allowing transactions in fractional Bitcoins. Frequently thought of as a hedge against economic catastrophe, Bitcoin actually looks “more like the stock market on steroids than a digital version of gold,” said Lionel Laurent in Bloomberg.com. Serious investors are sensing that a “risky trading opportunity is in the air,” knowing that the “retail punters” with their $1,200 stimulus checks are “right behind the smart money.” But “nothing has fundamentally fixed Bitcoin’s weakness as a currency or store of value.” Despite Square and PayPal’s involvement, “if it ever became a threat to governments and central banks, it would be keelhauled by regulators.” “It was Thanksgiving three years ago that sent cryptocurrency mania into orbit,” said Brett Arends in MarketWatch.com. 

“Relatives who’d made money passed on the news to other relatives over turkey,” and within a month, Bitcoin’s valuation had tripled. The problem: “Old investors can get paid out only with money from new investors.” You’ll only have a buyer at $20,000 if that buyer thinks he’ll be able to sell it to someone else at $25,000. “And why would that person pay $25,000?” Because of the hope that someone else will...well, you get the picture. In the end, someone will be left holding the bag. “You can set your clock by these things.” And yet, what if the “crypto-kids are on to something?” asked The Economist. Bitcoin’s technology is “fiendishly clever”; crypto currency is easier to store and transfer than gold; and more merchants are starting to accept it. Yes, “there is no stream of future dividends to build a valuation around,” but the same is said of gold and nobody minds, “because it has been around for so long.” To many people, Bitcoin still “seems at best a fad, at worst a con job. But it refuses to disappear.”


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