Bitcoin has seen over the past year both its value and popularity explode. Hitting over $51,000 at the time of publication of this story, the cryptocurrency was once viewed as mysterious by many a decade ago. It’s now seen as largely mainstream: Major financial names like PayPal (PYPL) – Get Report and Visa (V) – Get Report today offer crypto services and increasingly more online retailers are accepting the digital currency. Even tech giant Nvidia (NVDA) – Get Report has created a new chip made just for cryptocurrency mining. (Cryptocurrencies, which lack a central banking system, can be digitally “mined” for new currency, offering big paydays for lucky digital diggers.)
But as the value in bitcoin rises to new daily highs and other currencies and projects have joined the race, regulators are taking watch — and digital currency bubbles will pop.
For perspective on Bitcoin’s surge and what’s ahead, TheStreet tapped the expertise of Dave Balter, the chief executive of Flipside Crypto, which provides analytics and business intelligence to crypto organizations and pens a regular column in TheStreet. Balter, who is also a partner with venture capital firm True Ventures, has run Flipside since 2017.
The following exchange, which was conducted over email, was lightly edited for clarity.
TheStreet: Despite Bitcoin’s relative volatility, we’ve seen an explosion in its value over the past several months, especially from October to now. At the same time, consumers have seen the name pop up at more and more retailers and celebrity CEOs like Elon Musk of Tesla (TSLA) – Get Report are shaking up the market with tweets about cryptocurrencies like Bitcoin and Dogecoin. Is crypto now truly mainstream? Why?
Balter: Bitcoin’s incredible recent rise in price is due to two things: belief systems and recent global trends.
Bitcoin has always been about technical stability and network effects. Early on, Bitcoin was judged by whether it was fail-proof: Would it get hacked? Was “decentralization” a workable model? When it halved, did it continue to perform? Over the last 10-plus years, many of those concerns have been resolved. Bitcoin works. It doesn’t break.
On the network effects side, like any form of money, Bitcoin’s value is denominated largely by how many people believe in it. Yuval Noah Harari’s book, “Sapiens,” notes that gold and the dollar are largely valued because enough people believe that they will maintain value. The same goes for Bitcoin; early on a small number of people believed which propelled early value accumulation, but now the network effects have become significant with celebrity investors and brand-name institutions supporting its belief system.
Recent global trends have also played a heavy hand in this. COVID-19 has transformed the world’s digital behaviors, accelerating 10 years of evolution into the single year of 2020. An example outcome of “work from home” and social engagement via digital tools was evident in the Reddit-GameStop (GME) – Get Report activity: The ability for an unknown Reddit community to transform the value of GameStop stock changed the entire playing field of stock volatility. More importantly, it showed the capability of the few to control the larger financial outcome. Bitcoin fits incredibly nicely into a similar narrative.
TheStreet: Springing off that, the world of cryptocurrencies is much bigger than Bitcoin, right? If it’s taken this long for Bitcoin to really gain legitimacy, what do you see for the other projects like Ethereum and the lesser known ones? Are any more likely to take off in the same way soon or will each have to prove itself?
Balter: Bitcoin has created the wake for many others to follow in. And while Bitcoin is famous for being the first — with movie-ready lore around a mysterious creator Satoshi Nakamoto, and $500 million pizza buying — it is relatively single-use case, as a store of value. Others, including Ethereum, have broader use cases,…