Bitcoin zero? Crypto evangelists have run out of stories to tell
A Bitcoin ATM at a California mall on Feb. 5.Justin Sullivan/Getty Images
After more than 15 years of bitcoin, we’re no closer to knowing what its point is.
It’s much easier to say what it is not. Bitcoin is not digital gold or a hedge against inflation, contrary to how crypto assets have been pitched to investors.
Nor is bitcoin a currency, an effective risk asset, a store of value, a safe haven, an alternative to traditional banking or a productive asset, since it has no cash flow, earnings, dividends or yield.
At least, it doesn’t do any of those things well. None of the use cases hold up any longer.
There is no story behind bitcoin any more. It’s not even clear why it has had such a calamitous few months at the precise moment the Trump administration was supposed to be ushering in a golden age of crypto.
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Bitcoin has become a vessel of pure speculation. Why did it skyrocket in the first place? More buyers than sellers. Why did it crash? More sellers than buyers.
In very short order, bitcoin has lost close to 50 per cent of its value, and crypto haters smell blood. The idea that bitcoin is destined to eventually be worthless is gaining traction once again.
Michael Burry, the investor who famously anticipated the 2008 market crash, warned of a potential bitcoin “death spiral” in a recent newsletter. “Sickening scenarios have now come within reach.”
New York University economist Nouriel Roubini said a “crypto apocalypse” is approaching in a column for Project Syndicate a couple of weeks ago. Should this “pseudo asset-class” be given the latitude the crypto industry is lobbying for, it could “undermine the foundations of the banking system,” Mr. Roubini wrote.
Meanwhile, U.S. research firm Pivotus Partners said it had a target of “zero” on bitcoin. “That’s not just for shock factor. It’s where the math takes us,” chief market strategist Richard Farr posted on X earlier this month.
For most of the past year or so, crypto evangelists had a powerful story on their side. Donald Trump’s return to power promised to be a breakthrough for the crypto space. In the three weeks after the U.S. presidential election, bitcoin rose by nearly 50 per cent.
Indeed, regulations were quickly cut and crypto-friendly regulators installed. In the days before his inauguration, Mr. Trump launched a pair of meme coins. Though they are now down by 95 per cent, the Trump family pocketed hundreds of millions of dollars.
Bitcoin’s honeymoon was short-lived. And it soon became obvious bitcoin wasn’t the thing its faithful thought it was.
The idea that bitcoin could serve as a modern alternative to gold, for example, has been dealt a fatal blow. At the same time as investors have flocked to gold as a hedge against geopolitical risks, bitcoin has been eviscerated.
Similarly, if bitcoin functioned as a hedge against inflation, now would be its time to shine, when consumer prices continue to rise stubbornly above target.
Instead, bitcoin has performed more like a risky asset, similar to stocks. But even then it seems to do poorly, and with much higher risk. Over the past five years, bitcoin has underperformed the S&P 500 index.
So what’s left? It would appear as though bitcoin has no compelling story left to tell investors.
“Bitcoin is a narrative sponge that has, for now, run out of narratives,” Brent Donnelly, president of New York-based research firm Spectra Markets, wrote in a recent newsletter.
“If you buy bitcoin today, what are you cheering for? Bigger deficits? Lower Fed Funds? Strong growth? Weak growth? Higher stocks? Higher gold? Tokenization of assets? More ETF flows? U.S. Strategic Bitcoin Reserve? Hard to say! Each story bitcoin tries on seems to fit for a while, then fall off.”
The Trump narrative hasn’t stuck either, with bitcoin now slightly down since election day 15 months ago. And while there are lots of theories for the latest nosedive, there is no clear catalyst to explain what’s gone wrong.
This isn’t the first crypto winter to descend on the industry. Bitcoin declined by as much as 80 per cent in 2018 after a retail bubble burst and regulators cracked down. Another crash in 2022 was sparked by a series of industry failures, the biggest of which being the US$30-billion collapse of Sam Bankman-Fried’s FTX exchange.
Each time, a new bullish thesis emerged from the wreckage. The question is whether investors will be won over anew whenever the industry figures out the next story to tell.
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