Bitcoin Is Back and Booming. Will the Rally Last?

Low interest rates on safer investments like bonds have some investors taking a chance on cryptocurrency.

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For the few years immediately following its inception in 2009, Bitcoin traded at pennies on the dollar. But last Monday, more than a decade into the cryptocurrency’s existence, Bitcoin investors hit the jackpot. According to data provider CoinDesk, the price of a single Bitcoin hit $19,850 for the first time ever, breaking its previous record of $19,783 in December 2017. 

Market analysts are quick to remind investors that Bitcoin remains a risky asset. After all, the cryptocurrency king’s record-setting week was the culmination of a sharp seven-month long increase since its March low, when it plunged below $6,000 following the stock market’s pandemic-induced crash. But as demand continues to increase and blockchain technology edges toward the mainstream, investors are becoming more and more optimistic that Bitcoin’s volatility is only temporary, and that the cryptocurrency will reap big returns in the long run. 

What accounts for last week’s rally? Some say the surge was simply a product of November’s gangbuster month for the stock market, driven by good news on the vaccine front and investors’ ongoing anticipation of a swift economic recovery. Over the past few months, the Federal Reserve’s low interest rates have deterred people from putting their assets into safer bets like government bonds. Investors have instead flocked to more speculative alternatives like Bitcoin, hoping to reap big gains while the market is hot.

Market analysts attribute Bitcoin’s 2017 peak to a surge in individual traders who caught the cryptocurrency fever and capitalized on Bitcoin to “get rich quick.” Highly accessible platforms like Robinhood, PayPal and Square’s Cash App have recently fed into this day trading frenzy by facilitating Bitcoin trades and allowing inexperienced investors to dip their toes in the crypto market.

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  1. Avatar photo
    DougCLE

    My problem with Bitcoin is that it’s the equivalent of mailing an envelope stuffed with cash to someone who may or may not be in Chechnya. I’m sure I can trust them to send me that $2500 gaming PC they promised, right?

    Cash transactions do not have the protections of “backed” transactions, but that normally doesn’t matter, because big cash transactions are generally made in person. Bitcoin in its current incarnation is pretty strictly an internet thing, and if I’m already firing up the PC, there are 100 easier and safer ways to pay for something online... unless I’m buying something I want no record of. (Hey, that Chinese slave labor ain’t gonna buy itself.)

    If someone develops a phone app that stores “Bit-pennies” that can be passed person-to-person, say by bumping phones together, then BC could become a viable (if highly volatile) currency. Without that, though, I just don’t see the point.

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    Evan Donovan

    The Bitcoin boom is bolstered by tether, which is backed by nothing. Read Case Piancey (pseudonym), Amy Castor, and David Gerard on this.

    Bitcoin is purely speculative and always will be.

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      Evan Donovan

      Sorry, autocorrect. I meant Cas Piancey

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  3. Would’ve could’ve should’ve

    Solid summary. Great job.

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    BikerChick

    I can't invest in something I don't understand. However, I did make a purchase on Overstock.com last week and I had the option to pay using Bitcoin. First time I had ever seen that.

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    Gordon

    Sounds pretty rosy. What about Mt. Gox?

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    Jason Gibson

    It’s always good when the dispatch gives us articles on these less widely known topics

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      Kaitlin Johnson

      Right?! I'm trying to figure out blockchain. Is it like an array in coding??

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      1. rob

        no, its like a ledger in accounting. Its just with each line of the ledger they calculate a hash code (which is a form of encryption) that prevents the transaction from being altered.

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          Jason Gibson

          You all still sound like Sarah explaining the 1876 election.

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        tallcupofcoffee

        Wikipedia has a great high level write up of blockchain.

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        Jason Gibson

        Sigh........Kaitlin i've never been intellectually intimidated by one so young. I'm not supposed to not know what you are talking about :)

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          Kaitlin Johnson

          Aww haha coding is one of my other nerd subjects :) People who do know it know that I don't know much but if you don't know it is sounds like I'm talking greek 😂

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            Jason Gibson

            that wasn't greek???????

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  7. Avatar photo
    O.M.G. calling from Vaudeville, AZ

    “I’mmm smart!” [won an Oscar] I just don’t understand why the money changers keep bragging how much it is worth now...in dollars? For what’s it worth, if man can build a block chain, can’t The Man destroy it?

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    Pat Riot

    Bitcoin as a product has two--and only two--actual purposes:

    1. As a speculative instrument, no different than any pyramid scheme.

    2. Illegal activity.

    That it. Nothing more. Okay, maybe one more:

    3. Keeping certain, um, "internet purchases" secret from your spouse.

    So here's the thing: Bitcoin and all of its clones could disappear from the face of the Earth and nobody would be harmed. And in the case of #2, millions of innocent people would benefit.

    I'm not suggesting it disappear--because it's technology and "it" will just get replaced--but only pointing out that any *legitimate* use of Bitcoin you here people talking about is just rationalization.

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    1. rob

      Actually BitCoin (and other cryptocurrancies) use encryption to both allow for transactions to occur without a centralized authority. (No banks, No governments, just math). Also the block chain technology that they use lock down the ledger where it can not be altered. A huge benefit over older technologies.

      It may get replaced, but if it is it will be replaced by something that improves on what it has already done.

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        Pat Riot

        Transactions in dollars don't require a central authority either. I just gave my gardener some cash the other day and there was no central authority involved.

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        1. rob

          The centralized authority in your transaction is actually the United States government that prints and regulates the dollar bill that you use. The idea behind cryptocurrencies is that anyone that can calculate the hash codes that make up the block chain can verify whether or not a transaction is authentic.

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            Pat Riot

            Interesting. I don't recall the US government being there when I gave my lawn guy his money last week. I thought the transaction was "authentic" and so did he.

            Meanwhile, anything on the computer has a good potential to be tracked down by the government. Sounds like cash is way better if you don't want a "centralized authority" mixed up with your transaction.

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          tallcupofcoffee

          Perfect, now imagine doing that for your gardener while you're on the beach in Florida. Or to your psychologist who specializes in sexual trauma.

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            Pat Riot

            My point was that the government will eventually regulate it just like they did large cash transactions.

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        3. Frank Pepp

          He's got a point though about the online stuff. My tinfoil hat neighbor loves it. But he's mostly getting taken advantage of being a trust fund baby. He was trying to sell me on pump and dump penny stocks before this. I'm fairly curious how many millions he's lost, as he now works night shift at a hotel to make ends meet. He seems slightly less crazy having a job, ha.

          If you're selling New World Order theories, this stuff is great. Also, one more way to con people out of their money.

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            Pat Riot

            It's another buzzword, that's for sure.

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      NightTrainLayne

      Bitcoin has the potential to be a financial asset, a store of value akin to Gold.

      I say potential because it's not there yet. It's too volatile to be considered a good store of value right now.

      However, it gives someone the ability to relatively quickly move a large amount of value anywhere in the world quickly and safely. And for that is attractive to entities who need to store a large amount of value.

      Gold is the long-time store of value for the wealthy. The problem is, it's unwieldly. It's hard to move. It can be hard to trade in some cases. Bitcoin solves those problems.

      There are institutions that are moving assets into Bitcoin. Michael Saylor, CEO of Micro Strategies has invested his company's Treasury in Bitcoin to the tune of $700 million. He's no engaged in illegal activity or keeping internet purchases secret from his spouse with that $700 million.

      Grayscale Bitcoin Trust has $10-11 Billion under management from qualified investors in cold storage not being used for anything other than as a financial asset.

      There is no question that Bitcoin has the potential to be a "store-of-value" financial asset.

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        Pat Riot

        You know what also gives someone, "the ability to relatively quickly move a large amount of value anywhere in the world quickly and safely"? Every form of currency on the planet.

        Absolutely *anything* can be a "store-of-value financial asset".

        Bitcoin is certainly a speculative instrument (#1 on my list for a reason), which is something that has been in demand for centuries. But in that regard it has tremendous competition (and the endless list of spinoffs of Bitcoin itself are just one category of competition).

        Cyrptocurrencies are only different because they can be used for illegal activity (for now, until governments start cracking down on that). The product here does what physical cash did before the 1970s (before the government cracked down on *that* with the BSA).

        If you want to speculate, then sure, have at it. But you have a lot of options is all.

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          NightTrainLayne

          Many currencies can be moved quickly and safely. However, none of them are currently a store of value in any way shape or form. The central banks are printing money ad infinitum and none of those currencies store value any longer.

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            Pat Riot

            Um, Bitcoin's value has fluctuated by thousands of percent over the last few years whereas (say) that of the US dollar has been absolutely stable for the last 40.

            Regardless, national currency, like Bitcoin, cigarettes, stock, bullets, etc. are all just investment instruments which can *all* store value.

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  9. Avatar photo
    JohnF

    Bitcoin is an excellent example of the "greater fool" theory of investment. If you buy bitcoin as an "investment", all that you are doing is speculating that someone else will be willing to pay more for certain digital bits than you were.
    At least if you sink your fortune into tulip bulbs, you will be able to enjoy the tulips.

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    1. Will Cosgrove

      I guess gold is just for making money off of greater fools too?

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        JohnF

        Gold is a physical, tangible substance that can be made into other things.

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        1. Will Cosgrove

          Yes, but the majority of the people buying and holding it don't have plans to turn it into bracelets.

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            JohnF

            No, if they are thinking at all logically, they are preparing for the apocalypse (or the collapse of the dollar). If the economy collapses, Gold will still have value as a tradeable substance.
            If they are hoarding it as a speculative investment, thinking that it can only go up in value, then yes, the "greater fool" theory applies.

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      DougCLE

      Though don’t you wish you’d bought it for “pennies on the dollar” in 2009?

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        JohnF

        Well, there are many things I wish I'd bought "back when". 🙂
        2009 turned out to be a good year to buy a lot of things. My brain is just more wired towards investments in tangible businesses that actually make money.

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    Poliorcetes

    Seriously, the main use of Bitcoin is to allow people to smuggle money, buy illegal items like kiddie porn, and speculate on the price of Bitcoin. They had to create an entire new Stable coin class just to get around how slow Bitcoin is when actually used. The energy use to run the system is amazingly awful. The entire market is beset with crooked exchanges and a million different Ponzi schemes. But other than that, sending your cash to strangers on the internet for beanie baby equivalents is a great idea.

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      tallcupofcoffee

      I think of bitcoin as a currency looking for a home. It will arrive once it has historical stability. I find it highly unlikely to go away as it's a strong contender for non-USD demanding population.

      Condemning its use for illicit purposes is like condemning gold for facilitating slavery.

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        George.Skinner

        One of the problems with Bitcoin is that it has a terribly slow transaction time due to its design. A typical transaction takes 10 minutes to process, but can take much longer. Compare this to the transaction time on something like Visa - approximately 1 second. It's not going to replace traditional transaction methods anytime soon.

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          tallcupofcoffee

          The Lightning Network is supposed to be the fix for that (as well as aggregate several currencies in the same transactional system).

          You may know something I don't. But my understanding is that's the path things are on.

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        Poliorcetes

        Yes, and I will fly once I grow wings. You can barely use it for anything other than money laundering or speculating on the price of Bitcoin. Which is why its a mostly Asian/China use, as there is actual value to being able to move cash out of China or to bring cash into North Korea.

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      Reader John

      Thank you for saying this, and saying it so spicily.

      I've tried a little bit to understand bitcoin, but failed each time. It strikes me not as an investment — not even a "speculative" investment — but as a gamble, for what else is "investing" in something that produces nothing?

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        Poliorcetes

        The theory was that it would undercut cash and become an international currency. But it turns out the primary use case for cross border transfers is money laundering, unless you have extensive local regulation. It also turns out that if you allow electronic printing of money (wildcat banks), people will print as much as they need. Which is what "coins" have turned into. Plus the vague general understanding of what Bitcoin vs other crypto coins just lends itself to a very murky and dangerous investing environment. The immutability of the bitcoin transaction also adds greatly to your risk (ie. once you lose the code or its stolen, there is zero ability to reverse the transaction). There are huge swathes of bitcoin that are now electronic bricks because the access code was lost.
        From what I can see, this a mostly Asian phenomenon as the limited legitimate investing opportunities (and the desire to move money out of China) are creating a huge "push" from a lot of low understanding investors. You also have a huge North Korean supply side (from ransom ware) looking to cash out.

        TLDR: Electronic widget that is complex to use, easy to lose, unregulated, and has an extensive history of fraud. Please send your cash soonest . . .

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          Evan Donovan

          Good summary

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      Poliorcetes

      Just look at what PayPal did with it, they totally isolated it from the network due to regulatory concerns. All you can do is trade PayPal owned bitcoins. Which is at least safer than using the exchanges run by anonymous people in non-extradition countries.

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