Bitcoin could be the mother of all manias as it soars toward $100,000
As bitcoin prepares to vault to $100,000, I can’t help but wonder if cryptocurrency – not artificial intelligence – is the mother of all financial market manias. Despite its increasingly widespread adoption as an investment vehicle, the flagship crypto has yet to make its intended mark as an alternative currency. While the market capitalization of bitcoin is approaching a staggering $2 trillion, the St. Louis Federal Reserve estimates that there are about $2.4 trillion in U.S. dollars in circulation globally. The U.S. dollar remains the world’s reserve currency, broadly used in more than half of all global trade and in foreign exchange transactions. The dollar’s share of global payments, as reported by SWIFT , hit 49.1% in August 2024, a 12-year high, even as bitcoin was hitting all-time price highs. After studying bitcoin for years, I still have no idea of its utility value as a currency, which many in the industry claim it is. True, it has become a store of value, albeit with a great deal of volatility. BTC.CM= YTD mountain Bitcoin in 2024 The first bitcoin, minted in 2009 , changed hands at about one-tenth of one cent. With bitcoin at nearly $100,000 on Thursday, the first buyers of the cryptocurrency would, no doubt, be worth scores of billions of dollars. Kudos to them. However, bitcoin’s sky-rocketing price doesn’t mean that the crypto yet meets the criteria to be a currency. The three defining features of money are: A medium of exchange A unit of account A store of value Bitcoin – or any cryptocurrency – is not widely used for transactions. In fact, some experts estimate that bitcoin’s use case is still largely confined to illegal activities , or being used to get money out of countries with capital controls. The strength behind the U.S. dollar and gold The crypto crowd continues to insist that bitcoin and certain other cryptocurrencies will supplant the U.S. dollar as the world’s reserve currency . Even as they make that claim, the dollar continues to appreciate against the world’s most widely used currencies, like the euro and the Japanese yen and the Chinese yuan. Critics of the current monetary system say that central banks create money out of thin air. This claim is rich with irony since bitcoins are “mined,” by solving complex mathematical problems. There are no physical bitcoins. They reside in virtual wallets while real dollars reside in leather ones. In my mind, though my thought process may be far less sophisticated than that of bitcoin’s creator, there’s simply no there there. Aside from that, dollars have also already been digitized through massive technological changes in global payment systems, rendering the need for an alternative moot. Of course, bitcoin could be “digital gold,” the alternative use case pushed by many in that arena. But physical gold has also rallied of late, outperforming several different asset classes amid uncertainties around inflation, interest rates and geopolitical instability. One of the biggest ironies is that President-elect Donald Trump wants to make the U.S. the crypto capital of the world. This notion is entirely antithetical to decentralized finance. No government or any other authority governs crypto. It is independent of policy and centralization. The real question in my mind remains, does the world need bitcoin, or does it just want the flagship crypto? Did the Dutch need – or want – tulip bulbs in the 1600s? They most certainly wanted them more than they needed them. As a result, the Dutch massively bid up their prices. The resultant crash after the Dutch ” tulip mania ,” as it was called by historian Charles Mackay, was spectacular, though with less economic impact than some have claimed. If bitcoin crashed tomorrow – and I believe a crash is coming in crypto – many would lose vast fortunes, just as tulip speculators did in 17th century Holland. But, if I were a betting man, I would wager that no one else in the world would miss it. — CNBC contributor Ron Insana is CEO of iFi.AI, an artificial intelligence fintech firm.
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