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Trust them or not, banks and asset managers are poised to flock to Bitcoin too. "Wall Street has just started to dip their toes in," says Tyler Winklevoss, CEO and cofounder of Gemini, whose cryptocurrency exchange partnered with a more traditional one, CBOE, on Bitcoin futures contracts in December, offering institutional giants a way to participate. "It's the bottom of the first inning."

Fortune he's contemplating a fourth edition of his Irrational Exuberance, updated to include the cryptocurrency craze.)" data-reactid="24">Skeptics see a familiar mix of new-paradigm euphoria and get-rich-quick mania, with an unhappy ending looming. "It seems like the dotcom bubble all over again, or the housing bubble all over again," cautions Robert Shiller, the Nobel Prize-winning economist who literally wrote the book on the subject. (Shiller, who foresaw those crashes, tells Fortune he's contemplating a fourth edition of his Irrational Exuberance, updated to include the cryptocurrency craze.)

Still, for now the stampede of optimists continues, economists and possible calamity be damned. As investors pile in from Main Street to Wall Street, the question becomes, Is Bitcoin's rise more than an ephemeral rush?

Why Bitcoin Soared

In August 2010, nearly two years after conceiving of Bitcoin in a landmark white paper, Satoshi Nakamoto, the project's pseudonymous, as yet unidentified creator (or creators), proposed a thought experiment. "Imagine there was a base metal as scarce as gold," the inventor wrote in a thread on an online Bitcoin forum. The imaginary metal would not be "useful for any practical or ornamental purpose," Nakamoto wrote, but would have "one special, magical property: [It] can be transported over a communications channel."

Nakamoto was describing a physical analog to Bitcoin, and his point was to address a fundamental paradox of money: How does money get valued as a medium of exchange when its value lies solely in being a medium of exchange? The simple answer: It's mostly subjective. Perhaps limited supply and instantaneous portability would be enough to justify a market value for Nakamoto's magic substance. Maybe speculators, "foreseeing its potential usefulness for exchange," would bet on the stuff. "I would definitely want some," the philosopher teased.

Investors, it turns out, wanted some too--even though Bitcoin's usefulness remains largely theoretical. While some advocates dream of Bitcoin becoming the first universal currency, supplanting central banks and replacing and , so far its computerized bits are, at best, equivalent to "digital gold." They're good as a place to park money--what economists call a "store of value"--but impractical for payments, says Matt Huang, a partner at VC firm Sequoia. "The popular narrative around using Bitcoin to buy coffee or pizza is a pipe dream at this point."

Fred Ehrsam, ex-president of Coinbase, notes how unusual this "magical Internet money" is in practice. "The thing that gives it value is other people giving it value, which is a strange thing to wrap one's mind around." Strange, but hardly unprecedented: Like the green paper our economy is built on--and the gold and silver that predate it--Bitcoin is valuable because we collectively decide it is. "And if enough people agree," adds Huang, "then the bubble can just persist."" data-reactid="30">Fred Ehrsam, ex-president of Coinbase, notes how unusual this "magical Internet money" is in practice. "The thing that gives it value is other people giving it value, which is a strange thing to wrap one's mind around." Strange, but hardly unprecedented: Like the green paper our economy is built on--and the gold and silver that predate it--Bitcoin is valuable because we collectively decide it is. "And if enough people agree," adds Huang, "then the bubble can just persist."

cryptocurrency some years ago, the twins are said to have recently become billionaires. "Money is in many ways the ultimate social network," Tyler says. "It's a medium of value that connects us all."" data-reactid="31">To justify Bitcoin's tremendous rise, bulls like the Winklevoss twins point to Metcalfe's Law, which states that a network's value increases exponentially with each additional participant. Tyler, along with his brother Cameron, entered the national spotlight after suing CEO Mark Zuckerberg, their Harvard schoolmate, for allegedly stealing their business plan. In Bitcoin they've found a lucrative second act. Having invested a portion of their $65 million Facebook settlement in the cryptocurrency some years ago, the twins are said to have recently become billionaires. "Money is in many ways the ultimate social network," Tyler says. "It's a medium of value that connects us all."

Bitcoin also enjoys the brand recognition shared by innovators that arrive early and dominate fast, like in search, Facebook in social networking, and in e-commerce. "Bitcoin is more contagious than all the other cryptocurrencies because it's the first mover," Yale economist Shiller says. "Just like Harvard is considered the most prestigious university because it was the first one" in the U.S.

Bitcoin's uniquely set payout rate--which rewards "miners" for supporting the network with their computers--also helps make it more valuable. Prices of commodities like corn, oil, or gold often plunge when producers pump out supply to meet demand, creating inadvertent gluts. Bitcoin's supply, in contrast, is forever fixed, by computer code, at a total of 21 million coins (of which about 80% have been produced). And nothing drives prices up like scarcity.

Read more: 5 Burning Questions for Bitcoin Investors in 2018

In the eyes of some supporters, these advantages add up to virtually unconstrained upside. Cybersecurity pioneer John McAfee recently set a $1 million price target for Bitcoin by 2020 (revised upward from $500,000). Others say the market value could match gold's, which clocks in at $9.7 trillion--roughly $460,000 per coin.

Still, even Bitcoin's greatest backers acknowledge the possibility that the cryptocurrency's value could plummet--if, say, regulators in China or the U.S. decided to effectively outlaw it, or if a better and more functional blockchain superseded it. It would hardly be the first craze that fizzled fast. "I think of these as high-tech Beanie Babies or 21st-century tulips," says Robert Hockett, a law professor at Cornell who gained notoriety after the financial crisis for proposing that cities use "eminent domain" to buy out underwater mortgages. Hockett sees echoes of that disaster in Bitcoin-mania. After a securities regulator warned that people were taking out mortgage loans to speculate on Bitcoin, he noted the irony: "It's almost as though the cosmic joker out there is pulling our legs as maximally as possible."

lack privacy, and fees commonly run as high as $20, even for transfers of small sums. Hackers run rampant. And the entire network can currently handle, at most, only seven transactions per second, compared to the thousands that Visa and Mastercard process in the same span. "It's a bit like betting only on Betamax when new video technology was coming online in the 1980s," Hockett says." data-reactid="37">Hockett believes blockchain tech will prove a game-changer. But he can't understand the fascination with Bitcoin, given its copious flaws. As the original cryptocurrency, Bitcoin suffers from drawbacks typical of first-generation technology. Transactions lack privacy, and fees commonly run as high as $20, even for transfers of small sums. Hackers run rampant. And the entire network can currently handle, at most, only seven transactions per second, compared to the thousands that Visa and Mastercard process in the same span. "It's a bit like betting only on Betamax when new video technology was coming online in the 1980s," Hockett says.

Jim Rickards, chief strategist at Meraglim, a financial analytics firm, views Bitcoin with equal fatalism. "I'm extremely bullish on the future" of blockchains, he says, "but I view Bitcoin as a Neanderthal, an evolutionary dead end."

An Endangered Species?

When British scientists first encountered the platypus in the late 18th century, they suspected a hoax. The animal didn't fit in their conventional taxonomic categories. It looked like a mole, but it had a duck's bill, a beaver's tail, and an otter's feet. Plus, it was venomous and laid eggs. Still, "after really careful examination, they said, 'This is real!' " says Spencer Bogart, head of research at Blockchain Capital, a venture capital firm devoted to cryptocurrencies and related tech.

Bogart is deploying a favorite analogy: "Just like the platypus is not good at being a reptile, a beaver, a duck, or an otter, but it's great at being a platypus; Bitcoin is not good at being a currency, a commodity, or a fintech company, but it's great at being Bitcoin. It's creating its own category and asset class."

When skeptics dismiss Bitcoin, bulls like Bogart push back. Unlike gold, Bitcoin is not static. The software code is under constant development. Its features can be tweaked, improved, and "forked" into new iterations, with the potential to unlock value in as yet unimagined ways. Many Bitcoin fans, for example, have high hopes for the "Lightning Network," an improvement designed to facilitate quicker payments. If Bitcoin, in its evolution, acquires more compelling utility--making cross-border payments cheap and fast, for example, or enabling "smart" contracts that encode business relationships and automatically disburse payments--those who own stakes in the finite currency could find other would-be users, possibly even deep-pocketed corporations, clamoring to buy from them.

For many, this is reason enough to play the long game. Most of the earliest investors seem to be doing just that. People who have held Bitcoin for at least three years--so-called HODLers, a name that stems from a typo for "hold" in an online forum--are largely still HODLing. Their Bitcoins accounted for only 4% of the Bitcoins moved in 2017 to cryptocurrency exchanges, according to research provided to Fortune by Chainalysis, a digital forensics firm. Since moving to an exchange is a rough proxy for an intention to sell, this suggests the vast majority are keeping their windfall in reserve.

There are many reasons, of course, to take the wait-and-see approach with Bitcoin--from the fact that it could be worth double tomorrow, to the reality that there are currently few nonspeculative ways to actually spend or use it. The wealth management giant Fidelity, for one, allows employees to buy lunch with Bitcoin in the company cafeteria, but so far the program has been a dud. After all, paying $5 in Bitcoin for a sandwich today could be like paying $100 next Christmas. No one knows.

 

Therein lies a problem: If a cryptocurrency is too volatile to spend, it can't be a useful currency. On the other hand, if it did someday stabilize and become widely used, its soaring prices would flatten out; it'll be the "boring investment" that broker Martin Garcia fears. Either outcome--proof that Bitcoin can't work as a currency, or proof that it can--could suck speculative money out of Bitcoin and precipitate a painful crash. Meanwhile, if the HODLers are sitting on Bitcoins until the currency achieves widespread functionality, just how long will they be willing to wait? "If three years becomes 10 years, the market will collapse," says investor Novogratz. And in any of these scenarios, Bitcoin's decentralized nature means there are few if any levers regulators (or anyone else) can pull to put a floor under a Bitcoin implosion.

Still, big players have decided these are risks well worth taking. Bubbles usually pop after the "dumb money" chases the smart money, but until now, it has mostly been individuals and small investors who have driven the Bitcoin phenomenon. While people can buy fractions of Bitcoin in increments of as little as $1 on cryptocurrency exchanges, institutional investors have largely been barred from those venues owing to fiduciary and compliance requirements around custody of assets.

Now that's starting to change. Companies like Coinbase and BitGo are rolling out products catering to heavyweight investors, as even the most staid hedge funds and sovereign wealth managers come knocking. is said to be considering launching a Bitcoin trading operation. (The bank's sole cryptocurrency-related investment to date, a startup called Circle, already operates a trading desk.) According to the bulls, the influx of smart money could eclipse all the wealth currently invested in Bitcoin--theoretically more than doubling the market value in one fell swoop.

And there's another reason to believe Bitcoin can go up a lot more before gravity drags its value back down to something stable. Historically, some of the frothiest bubbles have been relatively confined: the 17th-century Dutch tulip bubble left little collateral damage beyond the Netherlands; the dotcom boom blew up Silicon Valley, but international stock markets rebounded relatively quickly. Today, however, anyone in the world can buy Bitcoin--including unbanked peoples ranging from Afghanistan to Zimbabwe who have never had access to capital markets before. "The fact that this is our first global mania," adds Novogratz, "will make this the single most speculative bubble of our lifetimes."

What’s Next

For those reasons and more, says Novogratz, "it wouldn't be crazy if the crypto bubble hit $10 trillion, and that's 20 times more than what it is today." By comparison, he adds, Nasdaq stocks hit a market value of more than $6 trillion before the dotcom bubble burst, not accounting for inflation.

Brian Armstrong confides to Fortune following a recent all-hands meeting. With the total market valuation of all cryptocurrencies well above $500 billion, and few opportunities to put these coins to real use, Armstrong worries that "we haven't really earned the value of that half trillion." Nonetheless, in his experience, each time Bitcoin's price has surged, the valuation has leveled off at a higher plateau--even after crashes." data-reactid="52">Of course, the Nasdaq included , , and many other companies that were established business powerhouses, before and after the crash. Bitcoin, for now, remains a platypus of unproven worth. Even the CEO of Coinbase, one of the biggest beneficiaries of the mania, harbors concerns about it. "We probably are in a bubble," Brian Armstrong confides to Fortune following a recent all-hands meeting. With the total market valuation of all cryptocurrencies well above $500 billion, and few opportunities to put these coins to real use, Armstrong worries that "we haven't really earned the value of that half trillion." Nonetheless, in his experience, each time Bitcoin's price has surged, the valuation has leveled off at a higher plateau--even after crashes.

Winklevoss twins' Gemini, or starting cryptocurrency-specific hedge funds, as AngelList founder Naval Ravikant is doing. It takes money to make money." data-reactid="53">The more Bitcoin's price runs ahead of its capabilities, bulls say, the more likely that its technology may catch up to the hype. "The financial speculation that's going on ... is so important to developing infrastructure," says Demirors of the Digital Currency Group. The gusher incentivizes programmers and businesspeople to dedicate time and effort to Bitcoin-related projects. Already, farsighted zealots are pouring newfound riches into the cryptocurrency economy, creating blockchain-oriented businesses, like the Winklevoss twins' Gemini, or starting cryptocurrency-specific hedge funds, as AngelList founder Naval Ravikant is doing. It takes money to make money.

Then again, the more wealth that flows into Bitcoin, the more conservative an approach its maintainers may take in updating it. This could present an opportunity for other crypto coins to outmaneuver their forerunner. "I think Bitcoin's market share is a long-term downward trend because there are so many other interesting technologies being created," says Olaf Carlson-Wee, founder of crypto hedge fund Polychain Capital. He adds: "As a rule of thumb, I never bet against cryptocurrencies."

To Jerry Brito of Coin Center, the future of Bitcoin isn't about just the potential for limitless returns, but the promise that his daughter will grow up in a better world. "It's a world where you can keep your money safe ... where you can trade with anybody else in the world," he says. Bitcoin's allure, in this view, is not about the money, per se, but about technology. Maybe that's why Brito insists there's no fiscal significance in the name he and his wife eventually chose for the baby. They call her Penny--but it's short for Penelope.

A version of this article appears in the Jan. 1, 2018 issue of Fortune with the headline “How High Will Bitcoin Go?”

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