It’s tempting to believe that what you could call the “Big Short” moment has come and gone. With the price at about $6,500, the cryptocurrency crowd talks of a “screaming buy.” Hedge fund Pantera and venture firm Blockchain Capital are predicting a rebound to $10,000 or $20,000 within the year. That’s a doubling or tripling in months. It’s happened before.
But such bullishness looks premature. It would mean finding a new population of incremental buyers, and keeping bearish bets at bay. To achieve both seems a stretch right now.
The historical record of Bitcoin suggests its greatest leaps are made thanks to speculation, rather than to any real progress in utility or technology. Bitcoin’s rise to $19,000 from $6,500 at the end of 2017 was fueled by the belief that the price was only ever going to go up. There was no evidence of any increased adoption in the real world — if anything, the heuristics of Bitcoin trading called for hoarding, or HODLing, to sit on the gains.
The problem is that it will take time, and a long-term track record of price stability, before Bitcoin is seen as a truly investable asset — let alone one that offers measurable relative or intrinsic value. The fact that regulators are only just beginning to clean out exploitable flaws and manipulations in cryptocurrency exchanges is also a red signal. We still don’t know to what extent prices are being influenced by manipulative practices.
Eulogy made by Lionel Laurent
I quit reading criticisms of marijuana legalization that contain the words “we still don’t know.” Sure enough, the last sentence here contains those immortal words of cautious ignorance; “We still don’t know to what extent prices are being influenced by manipulative practices.”