The Frenzied Crypto Bubble Unexpectedly Gained Legitimacy

Up until this point, “crypto winter” symbolized challenging times for cryptocurrency enthusiasts, characterized by plummeting and languishing values that persevered until prosperity resumed. Presently, however, the crypto realm is celebrating a year-end akin to a “brat summer,” the market experiencing a surge as evidenced this month by bitcoin reaching over $100,000—a milestone previously unimagined. Within this current Era of Good Feelings—a term borrowed from the early 19th-century political climate in America—former critics are converting to crypto proponents. The once alternative financial tool meant to bypass traditional systems is finding itself increasingly melded with the very institutions it was designed to sidestep.

The upsurge has been undoubtedly bolstered by the recent electoral success of Donald Trump. Despite a dip this week, bitcoin’s value remains elevated by nearly 40 percent since November 5, with other dominant cryptocurrencies like ethereum and ripple witnessing akin ascents. The rationale is clear: Trump tapped Howard Lutnick, the crypto-enthusiastic CEO of Cantor Fitzgerald, for the position of Commerce Secretary. He also appointed crypto supporter Paul Atkins to lead the Securities Exchange Commission, who will succeed Gary Gensler—a figure notorious in crypto circles for his legal actions against prominent exchanges and various industry entities. Further, Trump reaffirmed his pledge to establish a Bitcoin Strategic Reserve, mandating the Treasury Department to amass and retain substantial bitcoin value as a “permanent national asset.”

Several other optimistic signals accompanied the regulatory shift favoring cryptocurrencies. Recently, investment heavyweight BlackRock—having launched one of ten bitcoin-linked exchange-traded funds in January—published findings advising investors ready for high risk to consider allocating up to 2 percent of their portfolio to bitcoin. Meanwhile, MicroStrategy, with its business pivoting to essentially operate on buying bitcoin through stock and debt issues, joined the Nasdaq-100 after its stock appreciated by more than 600 percent in less than a year. This fortune has buoyed the spirits of bitcoin owners—referred to as HODLers, a nickname that evolved from a common misprint of “hold” and now signifies “hold on for dear life”—inspiring some to predict bitcoin’s climb to $1 million by the conclusion of 2025.

My initial encounter with bitcoin was in 2011, the price then only around $14, and I considered it a bubble. If I had invested $1,000 then, I would currently be in possession of millions. Therefore, for an enduring bitcoin skeptic like myself, there is an inherent difficulty in reconciling the missed opportunity due to a miscalculated forecast of crypto evolution. Nevertheless, bitcoin’s cultural adoption has continued regardless of its inherent risks: It remains a highly volatile asset, its valuation is largely sentiment-driven as opposed to being grounded in fundamental value, and it’s poorly suited for widespread transactional use as a digital currency. What’s altered is the broader investment community’s dismissal of these factors as irrelevant. Like gold, bitcoin’s worth is founded on collective consensus. The HODLers have thus seemingly materialized a viable asset from nothingness.

Exploring the volatile Trump-influenced economy

Reliability should not be confused with steadiness. Crypto’s path over the prior decade has been characterized by dramatic surges due to optimism, quickly chased by deep downturns. Bitcoin’s valuation has dropped by at least 49 percent on various notable occasions, and there’s no basis to claim that it has reached a stable zenith. (Just last week, subsequent to striking an all-time high near $108,000, bitcoin’s price declined by 15 percent within days, and MicroStrategy’s shares dipped over 40 percent in a month.) While pinning down a rational valuation for Bitcoin remains an enigma (a reason behind my reluctance to invest), dismissing its worth as purely speculative bubble-fueled enthusiasm—which was once a widespread critique—seems archaic. Despite its origins being fraught with questionable offerings like memecoins and shitcoins, and promoters claiming improbable returns, bitcoin in itself has nearly attained a status akin to that of established assets.

Bitcoin has become highly prized, albeit not for the reasons its proponents initially laid out. Designed to be a currency for trustless transactions avoiding the need for financial intermediaries such as banks, bitcoin’s everyday application for purchasing goods and services represents an inconsequential portion of its overall trading activity, which is predominantly about buying and selling bitcoin itself. Rather than serving as a medium of exchange, bitcoin has found its niche as a secure, portable, and easily accessible store of value, a characteristic especially pertinent in nations grappling with inflation or governmental appropriation.

Additionally, bitcoin was conceptualized to enable decentralized peer-to-peer exchanges, yet the majority of its trading in the West now transpires on centralized platforms. While initially touted for its potential to disrupt and provide alternatives to established financial institutions and governmental control, bitcoin’s considerable appreciation in the past years is largely attributable to its integration within the traditional investment framework (evidenced by accessible investment vehicles like ETFs), the growing involvement of institutional players, and the potential for government endorsement. This, paradoxically, includes potential government acquisitions of bitcoin, although the rationale for such volatility-laden state investments remains unconvincingly explained.

This assimilation process brings about notable implications. Firstly, in enhancing its appeal, it simultaneously imposes new forms of vulnerability upon bitcoin. For example, should Trump fail to establish a Strategic Bitcoin Reserve as promised, an immediate impact on bitcoin’s market price is foreseeable. Secondly, and perhaps more fundamentally, bitcoin’s initial revolutionary ethos has notably diluted. Nowadays, few envision bitcoin disrupting, let alone significantly undermining, global fiat currencies or challenging the dominant position held by traditional financial powers like Wall Street. Cryptocurrencies will consistently attract those wary of established systems and anticipating economic calamity. Yet the prevailing sentiment among current bitcoin HODLers appears not to be one of systemic challenge, but rather a desire for bitcoin to be embraced within the very system it once sought to evade.