Even as stocks took a tumble, the price of bitcoin surged once again on March 11. A single token of the cryptocurrency was trading above $72,000, a new record.
The $72,000 level was just the latest in a series of recent highs for bitcoin. For more than two years bitcoin struggled to approach the previous record of $69,000 set in November of 2021. Over the last few weeks, however, the price of bitcoin has climbed steadily.
Climbed steadily on average, that is. As has been the case since its inception, bitcoin continues to have wild price fluctuations, often with no immediately evident cause.
For instance, from March 3 to March 4, bitcoin’s price jumped by nearly 10 percent. By March 5, it had given back nearly all of that gain. Such a three-day swing is far from atypical for the original cryptocurrency.
Some of the recent gains can probably be attributed to the SEC’s January approval of the first bitcoin exchange-traded funds. Bitcoin ETFs make it easier and less risky for individual and institutional investors alike to take a financial position in the cryptocurrency asset class. With billions flowing into the new bitcoin ETFs, it is not so surprising that the price of bitcoin would swell.
Similarly, a major financial regulator in the United Kingdom just gave the green light to a new crypto-backed investment vehicle. This will mean even more money pumped into bitcoin and other types of cryptocurrency.
While those holding bitcoin certainly are not complaining about the new price record, this is far from unalloyed good news. Anything will go up in value if more people want it than currently have it, and if new entrants into the market are willing to pay a premium. Demand seems to be behind bitcoin’s new $72,000 price record.
Still, no one has really been able to satisfyingly articulate why demand for bitcoin should or will continue to go up and up forever. Yes, there is a limited supply of bitcoin — at some point there will be no more bitcoin mining. But there is a limited supply of lots of useless things that don’t perpetually go up and up in value.
Some financial firms are setting truly absurd price targets for bitcoin based on the recent price gains. A few even try to justify them: Ark Invest was among the firms approved to launch a bitcoin ETF, and Ark’s director of digital assets says use cases like serving as a hedge against inflation, making global payments, and being a “store of value” outside of central banks and governments will help to add to bitcoin’s market value over the next decade (Ark has put out a long-term bull case estimate topping $1.3 million per coin).
Except it’s logistically almost impossible to pay for anything other than a ransomwear attack using bitcoin, your value is much safer stored with central banks and governments than in cryptocurrency, and there are ways to hedge against inflation that, unlike bitcoin, have some kind of intrinsic value behind them. These same use cases for bitcoin were cited when it first came about well over a decade ago, and none of them have really played out in real life.
This April a so-called “halving event” will take place, and some analysts have cited this as another justification for ambitious price targets. In a nutshell, the halving event means that bitcoin miners will only get 50 percent of the supply of bitcoin they are being awarded today — instead of 900 bitcoin a day, within a couple months miners will only be able to sell 450 bitcoin a day.
A supply restriction like the halving event could indeed help temporarily prop up bitcoin’s price. Yet, again, if the price of bitcoin is based solely on demand having to outstrip supply forever, with very few outside the world of organized crime actually using cryptocurrency for anything practical, that is not a long-term recipe for success.
For now, though, congratulations to the bitcoin bulls out there on a new price record. Hey, you might even want to consider cashing some of that bitcoin out for actual currency which you can then use to buy something nice.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.
