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 study to likely be around 13 million) still appear to be fairly low relative to gold's, whose total value is believed to be around $7 trillion, this base of support could act as a foundation for driving a higher level of public trust/support, which in turn would propel Bitcoin higher.
To be fair, gold still compares favorably with Bitcoin in some important ways. Gold has been trusted as a store of value across the planet for thousands of years, while Bitcoin is barely a decade old; gold is bought and held by central banks; and on top of being used as a store of value, gold is used for jewelry and industrial purposes.
But Bitcoin, in turn, has some selling points relative to gold. Bitcoin's decentralized nature, combined with its ability to be accessed anywhere on the planet via secure digital wallets, heighten its appeal in countries where currency devaluation and/or the potential seizure of assets by the government are concerns. Such traits can also (regardless of how one personally feels about such behavior) let Bitcoin wallets act as an alternative to traditional offshore tax havens. In addition, Bitcoin's supply growth is mathematically fixed, with over 80% of all Bitcoins having already been mined.
And one definitely can't overlook the gap that still exists between Bitcoin's total value and gold's. If Bitcoin's market cap was to only reach one-tenth of gold's estimated total value, it would still have risen more than four-fold from current levels.
In many ways, Bitcoin still feels like a very speculative asset, one that arguably shouldn't receive any funds that a would-be buyer can't afford to lose. In the near-term, a pullback following a 100%-plus, 3-month rally definitely isn't far-fetched. And in the long-term, there's no guarantee that the number of people trusting Bitcoin as a store of value will rapidly grow, or that some of those who currently have faith in it won't have a change of heart if another extended downturn occurs. Also, though many of the worst-case fears in this area haven't been realized, there are still some lingering regulatory risks.
But with all that said, it's also not hard to imagine Bitcoin meaningfully adding to the large gains it has delivered over the last few years in the event that support for it as a gold-like store of value becomes more widespread. And on multiple occasions now, Bitcoin has done an impressive job of defying skeptics who have predicted support for it would wither after a major crash that followed bubble-like euphoria.