Bitcoin’s 224 percent rally this year invites for comparison with previous boom and bust cycles, but those who have played against its recovery before have ended up eating their word.
Bitcoin just does not disappear. The original cryptocurrency again had commentators who ate their word in 2020 – your really included. It is now time to accept that it is here to stay.
Like Monty Python’s Black Knight, Bitcoin believers treat almost deadly volatility as mere flesh wounds. Drops of 80% are welcomed as random purchases. But far from being a weakness, this is proof of the lifespan of the asset class. The cryptocurrency rose 224% this year, reminiscent of the wild progress in 2017 as it rose to record highs.
While the supply side of the schedule is algorithmically defined, I was caught off guard by the ability of demand to resist volatility. I took a closer look at how my thinking on this asset class evolved in this YouTube podcast:
Talking Gold and Bitcoin with Anthony “Pomp” Pompliano
Delivery of the digital tokens is limited to a maximum of 21 million, which is expected to reach in 2140 with periodic reductions in the reward for the network of computers that certify transactions. Yet supply dynamics are not sufficient to guarantee a long-term future. Many assets have artificially limited supply: Baseball cards, limited print artwork and a number of historic Ponzi schemes fall into this category.
What sets successes apart is how investors respond to crashes. In most cases, when a vehicle designed solely around the theory of larger nar collapses, it never recovers. There has been no significant progress with Bitcoin as an exchange entity. It is far from widely adopted as a currency.
Since Bitcoin’s market value reached 1 billion. Dollar in March 2013, there have been two cycles of increases to record highs followed by utilization of more than 80%. Each of these cycles was preceded by a halving of the block reward. The first cycle could be dismissed as an anomaly, the second as a coincidence. But a halving occurred again in May, and the cycle repeats before our eyes with cryptocurrency coming within a whisker from the full-time peak last week. To ignore it now is to reject the evidence of history.
Like social networks, cryptocurrencies derive their value from the number of users. I could build a platform with the exact qualities of and even some improvements over Facebook, but achieving critical mass is another matter.
The cryptocurrency remains a speculative asset and more needs to be done to secure its claim to maintaining prosperity over time. Volatility will have to fall and a reliable link to inflation must emerge. But betting on Bitcoin, which is recovering from the next crash, is betting on experience. And its gentle, bloody survival is what gives it the best chance to eventually become the ultimate value store.