On Monday, Tesla announced that it had spent $1.5bn of its cash reserves buying bit-coin, and would soon start accepting payment for its electric vehicles in the digital currency. It sent a frisson of excitement running through the world of cryptocurrencies.
Adding to the frenzy, BNY Mellon — America’s oldest bank — on Thursday said it would start holding and transferring cryptocurrencies for asset management clients, while Mastercard said it would soon support “select cryptocurrencies” on its network, allowing more stores to accept them as payment. Even Miami’s mayor trumpeted plans for the city to buy bitcoin.
The flurry of announcements sent the price of bitcoin — which was only invented by an unknown cryptographer in 2008 — to a new high of $48,277 on Thursday. Despite dipping yesterday, that brings its 12-month gain to 358 per cent and means that the 18.6m bitcoin currently “mined” through an energy-intensive network of computers around the world are currently worth $877bn in total. That is twice the value of JPMorgan, America’s most valuable bank, more than eight Goldman Sachs’, or about a third of the entire FTSE 100.
In fact, many proponents argue that bitcoin will play the role that gold did in previous eras, as the central, reserve currency in a wider ecosystem of digital assets. Scott Minerd, global chief investment officer of Guggenheim Partners, posits that given the market value of all gold globally, each bitcoin could ultimately be worth as much as $400,000.
Detractors, meanwhile, ridicule the progressively outlandish price predictions brandished over the years by bit-coin proponents. They see it as little more than a “digital tulip”, a reference to the infamously frivolous 17th century Dutch tulip bulb mania.
Nonetheless, despite the flurry of recent announcements there are few signs that bitcoin is becoming a viable currency — either as means of exchange or a true store of value, traditionally two of the main pillars.
Nikolaos Panigirtzoglou, an analyst at JPMorgan, points out that despite a rise in payments using the cryptocurrency since 2018, the overall volume remains vanishingly small. Costs are stubbornly high, at around $25 per transaction, and the wild volatility of bitcoin deters both buyers and sellers.