News Analyst
As bitcoin prepares to hit $100,000, I can’t help but wonder if cryptocurrency — not artificial intelligence — is the mother of all financial market fads. Despite its increasingly widespread adoption as an investment vehicle, the flagship crypto has yet to make its mark as an alternative currency. As bitcoin’s market capitalization approaches a staggering $2 trillion, the St. Louis Federal Reserve estimates that there is approximately $2.4 trillion in circulation worldwide. The US dollar remains the world’s reserve currency, widely used in more than half of all global trade and foreign exchange transactions. The dollar’s share of global payments, according to SWIFT, reached 49.1% in August 2024, a 12-year high, even as bitcoin reached unprecedented prices. After studying bitcoin for years, I still have no idea of its utilitarian value as a currency, as many in the industry claim. It is true that it has become a store of value, even if it is very volatile. BTC.CM= Year-to-Date Bitcoin Mountain in 2024 The first bitcoin, minted in 2009, changed hands at about a tenth of a cent. With bitcoin nearing $100,000 on Thursday, early buyers of the cryptocurrency would undoubtedly be worth tens of billions of dollars. Well done to them. However, the skyrocketing price of Bitcoin does not mean that the crypto still meets the criteria to be a currency. The three defining characteristics of money are: A medium of exchange A unit of account A store of value Bitcoin – or any other cryptocurrency – is not widely used for transactions. In fact, some experts believe that bitcoin’s use case is still largely limited to illegal activities or is used to withdraw money from countries with capital controls. The force behind the US dollar and gold Cryptocurrencies continue to insist that bitcoin and some other cryptocurrencies will supplant the US dollar as the world’s reserve currency. Even though they say this, the dollar continues to appreciate against the world’s most widely used currencies, such as the euro, the Japanese yen and the Chinese yuan. Critics of the current monetary system argue that central banks create money out of thin air. This statement is full of irony since bitcoins are “mined” by solving complex mathematical problems. There are no physical bitcoins. They reside in virtual wallets while real dollars reside in leather wallets. In my mind, even though my thought process may be much less sophisticated than that of the creator of Bitcoin, there is simply no solution. Apart from this, dollars have also already been digitized thanks to massive technological changes in global payment systems, making the need for an alternative moot. Of course, bitcoin could be “digital gold,” the alternative use case advocated by many in this space. But physical gold has also rallied recently, outperforming several different asset classes amid uncertainties around inflation, interest rates and geopolitical instability. One of the biggest ironies is that President-elect Donald Trump wants to make the United States the crypto capital of the world. This notion is completely antithetical to decentralized finance. No government or other authority governs cryptography. It is independent of politics and centralization. The real question in my mind remains: does the world need Bitcoin, or does it just want the flagship crypto? Did the Dutch need – or want – tulip bulbs in the 1600s? They certainly wanted them more than they needed them. As a result, the Dutch raised their prices massively. The collapse that followed the Dutch “tulip craze,” as historian Charles Mackay called it, was spectacular, although its economic impact was less than some claim. If bitcoin crashed tomorrow – and I believe a crash is imminent in crypto – many would lose immense fortunes, just as tulip speculators did in 17th century Netherlands. But if I were a betting man, I’d bet no one else in the world would miss it. — CNBC contributor Ron Insana is CEO of iFi.AI, an artificial intelligence financial technology company.
https://www.cnbc.com/2024/11/21/ron-insana-bitcoin-could-be-the-mother-of-all-manias-as-it-soars-toward-100000.html
