Bitcoin: up and up it goes (until it blows…again?)


Gold is holding firm around $1,900 an ounce and silver is hanging on to what looks like an upward trend at just shy of $25 an ounce but it is Bitcoin that catches the eye, which is now trading above $18,000, only a fraction below its December 2017 highs. The cryptocurrency is up by more than 150% this year and can point to a 60% gain since August alone. The price chart is now looking very similar to that of 2017 so investors now need to decide whether Bitcoin is again going to come down like a stick, having gone up like a rocket, or whether it will just keep on going – and going and going.

Source: Refinitiv data

Sceptics will offer three arguments against being a worthwhile investable asset class:

  • There is no guarantee that it will be used widely as ‘money,’ given the cost of mining and using Bitcoins and the ease of using contactless payment cards or smartphones to facilitate electronic payment. And if use does increase, then the regulatory authorities could push back, deploying either their own, official digital currencies (the Federal Reserve, Bank of Japan, Bank of England and European Central Bank are all running or planning experiments) or simply try to ban Bitcoin, like America’s President Roosevelt banned gold ownership with Executive Order 6102 in 1933.
  • Bitcoin generates no cash, so it has no intrinsic value and is thus impossible to assess when it comes to deciding what is a ‘fair’ or ‘right’ price for it as an investable asset. Financial Conduct Authority has, after all, just banned the sale of derivatives and exchange-traded note (ETN) trackers related to Bitcoin to retail investors, citing in particular the inherent nature of the underlying assets, which means they have no reliable basis for valuation. As such, assert the doubters, Bitcoin buyers are relying on the greater fool theory of hoping they can flip the asset on to the next person for a gain, in a manner no more sophisticated than seventeenth-century Dutch tulip bulb traders.
  • Bitcoin is therefore no more than a glorified Ponzi scheme, as new money comes flooding in at the bottom, serving to push up the price and let the early buyers get out with a fat profit.

Supporters – who are having the better of the argument again after a fallow two-to-three year span will counter all three:

  • Fans of Bitcoin will point to rising adoption of the cryptocurrency. According to, the daily number of confirmed transactions using the Bitcoin network is running at around 292,000 (although this is some way below the peaks of 2017 and 2019 that exceeded 370,000) and as a result the Bitcoin blockchain continues to grow steadily, reaching 302GB in the third quarter of this year, according to data from Statista.

Source: Statista

  • Libertarians will continue to expound the virtue of Bitcoin as a means of shaking off Big Brother or simply helping people to cope in countries where the economic, financial and political outlook can be uncertain. Research from Statista shows that nearly one-third of all Nigerians who replied to a survey had used Bitcoin at some stage in 2020, alongside a fifth of all Vietnamese and a just over a sixth of all South Africans and Peruvians.
  • The case which may resonate most strongly with those who look at Bitcoin purely from an investment point of view is how Bitcoin is designed to cap supply at 21 million. This could not be a bigger contrast to how Western Governments continue to rack up ever-growing budget deficits and central banks continue to run Quantitative Easing programmes. Increased supply of ‘fiat’ currency can only decrease its real-terms spending power, unless stimulus is at some stage held in check or sterilised, with inflation a potential result. If that view is borne out, then Bitcoin’s finite supply may make it attractive to those who feel their need to preserve their wealth in the face of rampant growth in money supply (hence Nelson Bunker Hunt’s old maxim: Almost anything is better than paper money. Any fool can run a printing press.)

Source: Refinitiv data, FRED – US Federal Reserve data

If you argue that the first surge in Bitcoin was due to the interest of early adopters and true believers in the technology and the second the result of speculative investment interest it is possible to argue that this one is down to greater corporate and institutional interest – Starbuck’s has run trials to accept Bitcoin, Jack Dorsey’s payments company Square has purchased Bitcoin and America’s Greyscale Bitcoin Trust continues to grow its assets and therefore acquire more Bitcoin.

The buying by dedicated investment vehicles may play to arguments about Ponzi schemes, but if a tidal wave of money meets an asset where supply is fixed, it takes little imagination to work out what the result could be.

These articles are for information purposes only and are not a personal recommendation or advice.

russmould's picture
Written by:
Russ Mould

Russ Mould has 28 years' experience of the capital markets. He started at Scottish Equitable in 1991 as a fund manager and in 1993 he joined SG Warburg, now part of UBS investment bank, where he worked as equity analyst covering the technology sector for 12 years. Russ joined Shares in November 2005 as technology correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media by AJ Bell Group, he was appointed AJ Bell’s Investment Director in summer 2013.