Opinion | The creepy resilience of a cryptocurrency
Bitcoin is back in the reckoning. The world’s premier cryptocurrency is within sniffing distance of $9,000 apiece, and investors still seem bullish on it. To be sure, its current value—at $8,918 on 29 May—is below its peak of $19,600-plus in late 2017, which was achieved after an exponential rise all through that year. That ascent took online traders by storm and stoked fears of a tulip mania-like “bubble” just before it crashed dramatically; by the end of 2018, it had slid to about one-fifth of its peak value. Dismissed back then as a flash in the pan by many, Bitcoin’s recovery over the past two months is nothing short of remarkable. The concept of such a global online currency not only seems here to stay, it’s no longer laughable to suggest it may outlast the usual kind issued by nation states. Bitcoin’s market capitalization is now over $150 billion, reportedly. No wonder, Facebook Inc. plans to launch its own version, called GlobalCoin, in early 2020.
Ever since a mystery man called Satoshi Nakamoto created Bitcoin as an online “peer-to-peer electronic payment system”, its very conception has been a subject of controversy. In essence, it’s a decentralized and borderless currency based on blockchain technology that promises to rule out counterfeits and resist all intervention. According to its advocates, unlike a currency issued by a country’s central bank, which is susceptible to politically expedient oversupply, a cryptocurrency is under nobody’s influence. In theory, its supply mechanism—requiring digital “coins” to be “mined” via a rigorous process—ensures the scarcity needed to sustain its purchasing power. With software in charge of its “monetary policy”, it was all too easily touted as an ideal means of exchange for the wired world. It didn’t take long for investors to spy in Bitcoin a store of value as well, and the ensuing scramble to buy it for capital appreciation drew the concept into the spotlight. Its success has prompted scepticism all along. Global investor Warren Buffett once slammed Bitcoin as a “gambling device”. Far more serious suspicions have been raised over it being the currency of choice for illegal dealings on the “dark web”, where narcotics, weapons and other scandalous things are said to be on sale. Since a cryptocurrency can also serve as the online equivalent of an anonymous bank account, allegations of its use for tax evasion and financial fraud have also been made. Its sharp rise in 2017 may even have been aided in some measure by a “flight to safety” of Indian black money after the demonetization exercise of late 2016.
India banned crypto-currencies in 2018, shortly after a Chinese clampdown. This was widely welcomed for the reason that it’s very difficult to track and regulate commerce conducted in digital currencies. They lack legitimacy as an asset class, too, since they have no returns to offer—only capital gains, and that too, only so long as they attract more and more buyers. As for their actual online utility, little is known. Thanks to Bitcoin’s shadowy use, it’s easy to scoff at it as a kind of Ponzi scheme. Yet, it’s on the rise again. Could it be acting as a global safe haven for those spooked by US-China trade tensions? Possibly. Are Indians secretly into it? Perhaps. But if Bitcoin—or any rival—outlives the currencies managed by sovereign monetary authorities, it will be because people believe it can’t be debased. That would be a victory of software over central bankers.
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