Is the bitcoin price surge a bubble?

Bitcoin made a new record high this week, but it has been a characteristically wild ride. The cryptocurrency eclipsed $19,857 (£14,897) on Monday, topping its December 2017 high of $19,783.

That came after last week’s three-year high of $19,374, which was followed by a stomach-churning 14% plunge in a single day. Bitcoin has gained more than 170% so far this year.

The latest surge suggests that cryptocurrencies are overcoming the “credibility hump”, writes Sam Benstead in The Daily Telegraph. PayPal recently announced that it will let customers use bitcoin.

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Institutional investors and hedge-fund managers have started to talk about the currency in more positive terms. It is sometimes dubbed “digital gold”: a key attraction is that unlike fiat currency, bitcoin cannot be debased. Only 21 million bitcoins will ever be created.

Google searches for “bitcoin price” have surged to the highest level since June 2019, says Omkar Godbole on coindesk.com. Yet searches are still running at only one-fifth of the level they reached during the bitcoin frenzy of late 2017. That suggests that while there is some froth around, institutional investors are playing a larger role in this rally than they did last time.

A monetary revolution

I have previously compared the buzz around bitcoin to 17th-century “Tulipmania”, says John Authers on Bloomberg. “Tulips, I averred, are at least rather pretty.” Yet unlike investment tulips, which collapsed into obscurity in February 1637, bitcoin “keeps coming back for more”.

There are still reasons to be sceptical, says Izabella Kaminska in the Financial Times. Far from the utopian “decentralised network” desired by its early proponents, bitcoin has become “just another highly intermediated and intensively regulated financial service”. Slow and expensive transaction costs make it a poor fit for the role of digital cash.

And yet as physical cash disappears, enabling governments and firms to encroach ever further into our lives, the appeal of cryptocurrency is only growing. For those who fear that “civil liberties cannot be taken for granted”, bitcoin’s “anonymous security” offers a “doomsday contingency system”.

The rich will increasingly see bitcoin as an attractive store of value, says Niall Ferguson on Bloomberg. The combined wealth of the world’s millionaires was $128.7trn in 2018. If they invested 1% of that in bitcoin, the price could rise to $75,000. Covid-19 has only expedited the world’s rush online, achieving in “ten months” what “might have taken ten years”, which has further cemented the status of cryptocurrencies. “We are living through a monetary revolution so multifaceted that few of us comprehend its full extent.”