On March 11, amidst a downturn in the stock market, the price of bitcoin surged to a new all-time high, surpassing $72,000 per token. This milestone marked the culmination of a series of recent highs for the cryptocurrency, signaling a significant turnaround after more than two years of struggling to approach its previous record of $69,000 set in November 2021. Despite its history of volatility, bitcoin has experienced a steady climb in price over the last few weeks, with occasional sharp fluctuations that are characteristic of the cryptocurrency market.
One notable factor contributing to bitcoin’s recent gains is the approval of the first bitcoin exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC) in January. These ETFs provide easier and less risky access to bitcoin for both individual and institutional investors, leading to a surge in capital inflows into the cryptocurrency market. Additionally, the recent approval of a new crypto-backed investment vehicle by a major financial regulator in the United Kingdom further fueled investor interest in bitcoin and other cryptocurrencies.
While the soaring price of bitcoin may seem like good news for existing holders, there are concerns about the sustainability of this upward trend. The price of any asset can rise when demand outstrips supply and new entrants are willing to pay a premium. However, the underlying factors driving continued demand for bitcoin remain unclear. While bitcoin has a limited supply due to the finite nature of bitcoin mining, this alone does not guarantee perpetual appreciation in value.
Some financial firms have issued ambitious price targets for bitcoin based on its recent performance, with projections reaching as high as $1.3 million per coin over the next decade. These projections often cite potential use cases for bitcoin, such as serving as a hedge against inflation, facilitating global payments, and acting as a store of value independent of central banks and governments. However, the long-term sustainability of these bullish projections remains uncertain, as the cryptocurrency market continues to evolve and face regulatory scrutiny.
Despite the prevailing bullish sentiment surrounding bitcoin, there are significant practical limitations to its use as a mainstream currency. The reality is that bitcoin is primarily utilized in illicit activities, such as ransomware attacks, due to the anonymity it offers. For everyday transactions, traditional currencies held by central banks and governments provide a more secure store of value.
Moreover, unlike assets with intrinsic value, such as commodities or real estate, bitcoin lacks tangible backing, making it susceptible to speculative bubbles and market manipulation. The supposed use cases for bitcoin, including hedging against inflation and facilitating global payments, have yet to materialize in practice despite being touted since its inception over a decade ago.
The upcoming “halving event” in April, which will reduce the supply of newly mined bitcoin by half, has been cited by some analysts as a catalyst for further price appreciation. While supply restrictions may temporarily support bitcoin’s price, sustained value growth relies on perpetual demand outstripping supply—an unsustainable premise, particularly given the limited real-world utility of cryptocurrency beyond speculative investment.
Nevertheless, congratulations are due to bitcoin enthusiasts celebrating the new price record. However, it may be prudent to consider converting some bitcoin holdings into fiat currency for practical use, as cryptocurrencies continue to grapple with regulatory uncertainties and inherent limitations in their utility as a means of exchange.