Bitcoin: Revolutionary Breakthrough, Or Mother Of All Bubbles
If you think America's politics are polarizing, consider Bitcoin. The price of a single Bitcoin today hovers around $50,000. Ten years ago, in its infancy, it was around a buck. The digital currency's meteoric rise has minted millionaires and energized true believers around the world. That's only convinced skeptics that Bitcoin is the mother of all bubbles.
In recent weeks, the price of Bitcoin has been driven higher following highly publicized investments from the carmaker Tesla and the life insurer MassMutual. Banks, MasterCard and the auction house Christie's have all opened their doors to this kind of cryptocurrency, bringing it closer to the financial mainstream.
Before corporate America tiptoed in, there were people like Nikki Beesetti fascinated by Bitcoin's promise. In 2017, Beesetti was an engineering major at Purdue University, facing typical college pressures, teaching on the side.
"I was getting paid about $10 an hour," she says. "It was just enough money for me to buy, food, coffee, ramen."
As an engineering student, she was curious about Bitcoin's technology, its innovative design. And eventually as an investment. So she did a lot of research and spent $2,000 on a single Bitcoin.
"I sold at the end of the year when it was about $19,000," she recalls.
The single Bitcoin she bought covered her tuition, books and lab fees. And it a way it changed her life. She's still buying Bitcoin, still excited by its potential.
"Sometimes when you're young a new technology can really excite you and can really shape your future and the way you look at the world," she says. "I think that was the case for me and Bitcoin. It's definitely made me more optimistic, definitely given me a lot of things to look forward to, especially in a time when things can seem so lonely and dreary."
The Bitcoin Maximalists
There's a phrase for people who are all in on Bitcoin, not just to get rich, but as a revolutionary breakthrough. They're called Bitcoin maximalists. George Mekhail is one of them.
Mekhail is a mortgage professional by day and the co-author of a book called "Thank God for Bitcoin" on the moral case for the cryptocurrency.
"I found something I believe in," he says. "I found something that seems like it has a benevolent mission to sort of help humanity. And so I stuck around."
He started buying Bitcoin in 2017 and has continued buying and holding ever since.
Here's the maximalist case for Bitcoin: The cryptocurrency is free of politics, significant at a time when so many people mistrust the competence and intentions of government. It's not controlled by central banks or leaders craving popular approval. Bitcoin is borderless. Bitcoin can't be counterfeited, spent twice.
And here's what might be the biggest argument of all on behalf of Bitcoin: The way it's designed, only 21 million Bitcoins will ever exist. So, like gold, it is finite, which makes it a hedge against inflation. In contrast, the maximalist argument goes, governments can print endless amounts of money. So scarcity will keep Bitcoin valuable. There's only so much of it.
Here's the more expedient case for Bitcoin: FOMO, fear or missing out. From professional traders to ordinary people buying fractions of Bitcoin on apps like Robinhood, buzzy momentum has propelled Bitcoin into the stratosphere. Its price has appreciated more than 440% from a year ago. That's why you might be hearing a friend or neighbor say, "I'm getting into crypto."
The Skeptics: 'I don't understand why its price isn't zero'
Skeptics say the momentum can't be sustained. They say a hard crash is inevitable, that unlike real estate or stocks or bonds, Bitcoin is an asset with no underlying value. "The idea that this thing is intrinsically valuable is, I think, misplaced," says Robert Shiller, a Nobel Prize winning economist at Yale known for his work on bubbles.
A number of Nobel Prize winning economists have warned against Bitcoin, saying it is a speculative bubble. One of them, Oliver Hart, wrote to NPR in an email: "Like many economists I don't understand why its price isn't zero."
From worthless to spectacularly valuable, the disparity of views on the value of Bitcoin is enormous. In part that's because the cryptocurrency is intangible, even mysterious. "It is essentially a currency that is based on nothing except mathematics," says James Ledbetter, editor and publisher of FIN, a financial technology newsletter. "It doesn't correspond to anything in the real world."
But it does exist in the digital world, where transactions are kept in a ledger. The underlying technology used to keep track of the transactions — known as the blockchain — is basically a means of record keeping. So-called Bitcoin miners use computing power to confirm that each transaction is legitimate and the entries on the ledger are visible to everyone.
"It's verifying the transactions so that everyone can have faith that the system is clean and transparent," says Ledbetter.
Many say the blockchain innovation can have meaningful real world applications, in copyright protection, land title registration, even in food safety – all of which need similar verification processes.
Brilliant Innovation That 'Belongs In A Movie'
The cryptocurrency ecosystem, however, does have its drawbacks. Verifying those transactions takes a lot of computing power and uses a lot of energy. Cybercriminals have stolen Bitcoins and other cryptocurrencies from exchanges where they are traded. And Bitcoin doesn't always go up. Its price has crashed several times before.
"It's a mystery how it's gained such acceptance," says Shiller. "I think has something to do with the coolness of the idea."
He agrees that the Bitcoin story is fascinating.
"Secret codes, computers that write codes that can't be broken. There's a narrative about this particular invention that sounds like it belongs in a movie."
Shiller says bubbles ride on a crest of enthusiasm. There's plenty of enthusiasm about Bitcoin. One place he sees it is in his classroom at Yale.
"I teach a course financial markets. And sometimes they seem to be falling asleep. I just bring up Bitcoin and they suddenly perk up."
But Nikki Beesetti, the former Purdue student who paid off her semester's tuition with Bitcoin, thinks the enthusiasm is justified, that Bitcoin and its technology will have uses that are hard to imagine today. She likens the situation to the dawn of the Internet age.
"A lot of people didn't think it would be the next big thing," she says. "They didn't see a value in it. They didn't see a point in sharing all this information to everybody in the world."
The next Internet, digital fool's gold or something else? The story of Bitcoin is evolving, So for now, it can be whatever you believe it to be. [Copyright 2021 NPR]
