The speculative fever gripping hedge-fund managers, bored day traders and billionaires has cooled. Stanley Druckenmiller, for one, has cashed out part of his bet. Aggressive 100-times leveraged trading has fueled panic selling.
In the light of post-lockdown summer, a lot of this year’s milestone events — Tesla Inc.’s Bitcoin buy, Coinbase Global Inc.’s stock-market listing and El Salvador’s adoption of Bitcoin as legal tender — look like frothy red flags, not proof of maximalist haiku that “Bitcoin Is Inevitable.”
Competing narratives are emerging, despite Bitcoiners’ efforts to shout down any criticism as “Nocoiner” FUD, the cool way to refer to fear, uncertainty and doubt. The story of a golden ticket to wealth is harder to spread after a 50 per cent drawdown, as is the idea of real-world adoption beyond trading.
The energy footprint of Bitcoin mining, once dismissed as a lesser risk than crypto simply disappearing to zero, is now a very real problem for institutional investors and governments with green requirements to fulfill; Tesla’s Elon Musk has found it impossible to ignore. The promise of a “digital gold” safe haven is still just a promise: Bitcoin’s price correlation is closer to a Nasdaq tech stock than the yellow metal itself.
Even its cheerleaders are reaching for dot-com metaphors after what looks like the third boom-and-bust cycle in Bitcoin’s short history. In the eyes of veteran trader Dan Morehead, the opportunity is a world-changing technology producing everything from decentralized finance to digital-art collectibles; the risk is knowing what’s Amazon.com Inc. and what’s Pets.com.
“If you’re just long Bitcoin, it’s kind of like in the 90s being just long Yahoo,” he said this week, a bit of a back-handed compliment for the original cryptocurrency.
It’s hard to separate bold predictions of dot-com disruption from the other old cliches of day-trader speculation, which need the promise of life-changing wealth to keep converting followers.
The listing of Coinbase was supposed to be a big step toward establishing the crypto equivalent of an Internet of Value and digital finance; in April the exchange accounted for 34 per cent of total Bitcoin volume, according to data firm Kaiko. Yet its biggest innovation since seems to have been succumbing to pressure to let customers trade the ultimate memecoin, Dogecoin, which is down by a third over the past seven days.
Falling — or flat — prices puts a serious dent to the fear of missing out, aka FOMO, and increases the potential for “shoe-shine” tip moments to go wrong. Self-promoting crypto traders are starting to attract mockery, not adulation: Satirical U.K. comic Viz recently crafted the cautionary tale of “Vince Fictitious,” an overnight billionaire after investing a “bit of chewing gum” stuck to his shoe. Ads on public transport saying “it’s time to buy” Bitcoin have been banned, but price charts might have done the trick anyway.
Sure, there are still life-changing gains out there — Bitcoin’s price remains at double where it was in November and about half of the supply has been held for longer than a year, according to Chainalysis. But network effects are starting to rub off; blockchain data shows a fall in the number of addresses holding $1 million or more Bitcoin equivalent since January. Pixel losses, realized or not, will have an effect on everyone from Lambo owners to Salvadorans making less than $5.50 a day who are being pushed into crypto.
Beyond the enthusiastic drumbeat of social media, no corporate treasurer will feel much pressure to dive in when the Bitcoin purchases of MicroStrategy Inc. and Tesla seem more like examples of governance folly than the future of cash management. MicroStrategy this week paid around $37,617 per bitcoin in its latest $489 million purchase; Tesla’s holdings work out to an average purchase price of about $32,000 each.
If success is staying power, then Bitcoin is far from failure. It’s supported by elaborate market infrastructure, even if various players have attracted fines and bans from regulatory authorities. Maybe the real threat to the narrative isn’t the price sinking to zero but more “normalized,” boring returns — glazed, not laser, eyes — that would evoke post-dot-com maturity.
Yet to even reach that level of acceptance will require faith that Bitcoin can overcome hostility from governments intent on flexing their post-pandemic muscles. Whether it’s China cracking down on miners, or the Biden administration rightly identifying crypto as a ransomware enablers, the well-founded suspicion is the crypto revolution will lead to DeGov and not just DeFi.
At a time when freedom is equated to the shape of a vaccine vial, and dependent on elected governments and fiscal stimulus so hated by Bitcoiners, the laser-eyed gospel is getting harder to spread.