Bitcoin Was Made for This Moment. So Why Isn’t It Booming?
Categories: Crypto News
For years, Bitcoin buffs who were questioned by skeptics about the value of the cryptocurrency would respond by saying: just wait.Wait until inflation hits, and people look to park their savings in a stable digital asset that won’t lose its value. Wait until war breaks out, and authoritarians start seizing assets and imposing capital controls on their citizens. Wait until big banks and tech companies start censoring dissidents for their political views. Then you’ll see why we need a stateless, decentralized, anonymous digital currency.In other words, this is a perfect storm of economic and geopolitical events that should, theoretically, be great for Bitcoin. But Bitcoin hasn’t boomed. In fact, even as Wall Street analysts contemplate the possibility of nuclear Armageddon, crypto prices have fallen steadily. Bitcoin prices are down 10 percent in the past month, and Ether, the second most popular crypto coin, is down roughly 15 percent.Day-to-day usage of cryptocurrencies isn’t picking up the way you’d expect, either. Bitcoin trading volume rose after Russia invaded Ukraine, but it has remained relatively flat since, suggesting that people aren’t rushing to trade their rubles and hryvnia (Ukraine’s currency) for digital currencies. Russian oligarchs don’t appear to be using crypto to evade sanctions en masse, either, despite initial fears that they might. One possibility is that crypto is still too confusing and too difficult for normal people to use, especially during a war. Internet access is spotty in many parts of Ukraine, and reports have suggested that even the country’s elites are struggling to convert their assets into crypto.Another possibility, popular among skeptics of Bitcoin and other cryptocurrencies, is that Bitcoin is still too volatile to be useful as a hedge against economic and political instability.Bitcoin is doomed, Mr. Nguyen argues, because it can be slow and expensive to process transactions, making it less useful for paying for things. “And so a lot of Bitcoin supporters have had to come up with this argument that it’s meant to be a reserve asset,” he said. Kevin Werbach, a professor of legal studies and business ethics at the Wharton School at the University of Pennsylvania, floated a different theory. Bitcoin’s earliest and most vocal adopters, he said, tended to be libertarians who saw cryptocurrency as a kind ofinsurance policy against hyperinflation and government corruption. But the more recent price swings in the crypto markets attracted a surge of speculators who viewed Bitcoin and other cryptocurrencies mainly as investments, and cared less about their political implications.Another possible explanation for Bitcoin’s underperformance, which was floated by Joe Weisenthal at Bloomberg, is that chaos cuts both ways, and that the same events that could be seen as “good for Bitcoin” in the short term — inflation, sanctions, geopolitical conflict — could also be bad for Bitcoin over the long term, since they could draw the attention of regulators.