From its December 2017 highs to its December 2018 lows, Bitcoin had a time-compressed version of many previous bubble crashes, shedding over 80% of its value and leaving those who bought in during its euphoric late-2017 run-up with major losses.
But as many readers are likely aware, a funny thing has happened since: After treading water for a little while, Bitcoin has rallied sharply since early April, and is now up about 150% from its late-2018 lows. While those bought the cryptocurrency in December 2017 or January 2018 are still underwater, those who bought it in, say, September 2017 are now doing alright.
And as much as I thought that Bitcoin’s late-2017 surge — and the broader cryptocurrency mania that accompanied it — felt like classic bubble behavior, the resiliency Bitcoin has shown in 2019 is arguably encouraging for its long-term prospects, even if (as is certainly possible) it gives back a portion of its recent gains in the coming weeks or months.
Given that it has largely failed to catch on as a currency for real-world transactions — among other things, Bitcoin’s volatility and its treatment under capital gains tax laws have worked against it here — Bitcoin’s worth is heavily tied to how much it’s trusted to act as a store of value, as a digital alternative to gold and other precious metals. And so just like gold, or for that matter things like artwork and sports memorabilia, Bitcoin has value to the extent that some percentage of the public perceives it to have value, with its value prone to rise and fall based on how that percentage changes.
In that context, Bitcoin’s rally in the wake of a massive post-bubble plunge that badly stung many 2017 buyers bodes well for the likelihood that some meaningful percentage of the public will continue trusting Bitcoin as a store of value, regardless of the near-term volatility it sees. And given that both Bitcoin’s total value (currently around $155 billion) and ownership base (estimated by one Sep. 2018…