Bitcoin has taken off again and it is now close to 24 thousand dollars. But is it really different this time, or should we prepare for another crash? Although there is no shortage of worried voices, we believe we can say that positive forecasts prevail at the moment. After the flare-up in autumn 2017 which in a few weeks led it to multiply its price by ten, touching $20, Bitcoin suffered an almost equally sudden collapse that plunged it towards $3. Many experts compared its parable to that of classic speculative bubbles, such as the famous tulip bubble, if not to the dramatic fall of Icarus.
In subsequent years the price of the best-known cryptocurrency continued to fluctuate. But by now it had fallen into oblivion and few had noticed that in mid-2019 Bitcoin had returned towards 12 thousand dollars, just as the following further fall towards 7 thousand dollars in December 2019 did not attract great comments. And then, when the shock from COVID-19 hit the financial markets, even Bitcoin seemed to succumb: between mid-February and mid-March 2020 it lost almost half of its value, from approximately $10.200 to $5.300. Therefore, it is spectacular to see that its value is now more than four times what it had reached at the lows of March 2020.
Various observers are questioning whether it is another flash in the pan, as in 2017, or whether something is actually changing that can make cryptocurrency climbing sustainable today. The benevolent hypothesis is supported, for example, by Jason Potts and Ellie Rennie in The Conversation. The authors argue that there would be three solid reasons for the vigorous appreciation of Bitcoin: the advent of digital currencies; the maturation of the underlying technology; recognition by the institutions.
Primo, the advent of digital currencies would now be favored by the pandemic crisis in two different ways: i) the response to the crisis has led central banks to a massive creation of monetary base and the search for safe-haven assets leads investors to also look at cryptocurrencies ; ii) the boom in online commerce and virtual payments has also accelerated the interest in digital currencies, and it should be added that central banks have also launched projects to create their own digital currencies.
Secondo, the technology that supports cryptocurrencies is maturing: an Ethereum project should drastically reduce energy consumption – initially very high – for transaction veracity calculations and, moreover, Decentralized Finance (DeFi) which uses the Blockchain is spreading – the Bitcoin vehicle – to build fully digital and automated financial markets.
Third, large asset managers and institutional investors, who initially did not see the usefulness, seem to have convinced themselves that the innovation of digital currencies is beneficial.
Of course, not everyone agrees with the benevolent view. One commentator notes that the recent strong appreciation appears to be driven by large players, as evidenced by the average transaction size. Another notes that Bitcoin can suffer from closing out of highly leveraged positions in the derivatives markets. A final note of caution to remember is the extreme volatility of Bitcoin: for example, on November 26, the cryptocurrency lost more than 15% of the value it had the day before in one day. In other words, the price of Bitcoin must stabilize and if it grows gradually, otherwise it cannot adequately play the role of a safe haven.
