Money, like faith, is the product of the human imagination.
— David McWilliams in The History of Money
Five years ago this month, when Bitcoin topped $50,000 for the first time, I wrote that “proponents surely don’t think of themselves as mere acolytes of an increasingly popular fiction.”
But that’s precisely what they were and still are. That’s not a criticism of Bitcoin nor of its acolytes any more than it’s a criticism of everyone who uses dollars, yen, euros and so on, to note that those currencies are likewise fictitious.
Money is a mythological order humans devised for the purposes of smoothing exchange, enabling savings and structuring society. With the benefit of hindsight, it’s clear that money, as an invention, constituted a transformative technology. It came to dominate power relations, facilitated human progress and at regular intervals exposed the depths of our depravity. But in the first instance, it’s an expedient fiction.
The strength and durability of any given money lies in the scope and depth of the trust network between users. The larger and more established that network, the more difficult it becomes to dislodge or supplant the dominant money. Just ask the nations currently keen to de-dollarize. One nation’s — let alone one person’s — decision to abandon a widely-held fiction is meaningless if it’s still accepted as secular gospel by everyone else in the network.
In the article linked here at the outset, I wondered, “If all of this is a fiction, then why can’t Bitcoin supplant it?” It was a rhetorical question which I promptly answered: “The truth is, it can!” Everything hinges on adoption and, ironically in the context of a supposedly “trustless” system, faith.
That brings us to Thursday, when the ongoing rout in Bitcoin pushed the world’s largest cryptocurrency below $70,000 for the first time since November of 2024, which is to say since Donald Trump — a born-again crypto apostle who never met a grift he didn’t want in on — was reelected to the highest office on Earth.
Bitcoin’s now down by nearly half from the October highs and by nearly 30% in just the past three weeks.
Of course, Bitcoin’s seen larger drawdowns. And that speaks to the problem: It’s hard to have a lot of faith in something that can — and has — lost nearly all of its value on multiple occasions in a very compressed time frame, even if, over that same period, the overall gain’s exponential.
Realized vol’s actually not that high as Bitcoin goes, but the latest drawdown’s yet another reminder that far from any claim on being “digital gold” — or some uncorrelated haven asset — Bitcoin’s far more likely to trade directionally with risk sentiment.
Industry (and I use that term very loosely here) folks described a tough environment that’s moved beyond “crypto-specific liquidations” and is now “tied to wider cross-asset stress,” as Bloomberg remarked.
As the figure above shows, the Bitcoin-to-gold ratio was just 14 on Thursday. It was almost 40 in December of 2024.
To state the obvious, there’s nothing to talk about here in terms of fundamentals. Everything’s just moving averages and other technical levels. Bitcoin’s a psychological phenomenon. There’s no ceiling, but there’s no floor either.
Episodes like this shake institutional confidence, and as I wrote in 2021, institutional adoption’s crucial to building out Bitcoin’s trust network.
In a short foreword to David McWilliams’s The History of Money, Michael Lewis noted that although cryptocurrencies were “born of mistrust of government and banks, they have ended up replicating the same sort of need for trust, and violating that trust in all the usual ways.”
Bitcoin’s unique among cryptocurrencies in being mostly immune from that criticism, at least as it relates to bad actors at the individual level. But at the end of the day, even “trustless” money comes back to faith. And as one MP at a digital asset quant firm put it Thursday, “The market is currently navigating a crisis of faith.”
Bessent said that the government does not plan to use taxpayer funds for open-market purchases. I don’t know why that would spook the markets as that was pretty much known?
Government support for bitcoin that is.
Throughout history, fiat money has always been stronger when it has a powerful military to back it up. Bitcoin only has an army of conmen, zealots, morons, and bad mathematicians.
Completely agree with this statement, money is an economic reflection of a nation’s power. The USD has been the global reserve currency because the US military can and will strike anywhere in the world at any time. If we began to withdraw from our ‘pointillist empire’ to quote the book “How to hide an empire”, then how much value does the USD continue to hold abroad? Who fills that power vacuum if we say, leave NATO? Crypto won’t fill that void unless the military power that replaces us uses it. And if that happens, hypothetically speaking, they won’t be using Bitcoin because there isn’t enough supply to sustain a global economy and whomever that nation is, they didn’t create it.
I hear what you are saying- and I hope that our country doesn’t pull out of NATO. The idea/belief in NATO has been decimated by Trump- but hopefully a future US president will do a better job of restoring the global belief in that concept – assuming NATO is still in existence.
However, there are a number of problems with NATO-
NATO doesn’t have any troops, and to invoke Article 5, it requires unanimous agreement of all 32 countries…..
The US has 50,000 troops in Germany- almost completely paid for by US. The contribution by Germany is something less than 20%.
Etc.
I’ve never understood the argument (complaint) reflected in your last sentence. In a nutshell, industrial America post WWII was fueled by massive subsidies of oil majors and military-industrial complex. Having bases around the world and piled up in Europe benefitted America as much as (more than?) Europe, though it certainly allowed Europe to become complacent. So arguing now that they’re not ‘spending enough’ for their own defense is just a convenient changing of the narrative. Just my two cents, not an attack on your comment, ST.
Gamblers going to be gamblers. Market cap of bitcoin is $1.4T. Market cap of Aapl is $4.06T.
Have fun!
That first chart is one nasty looking head and shoulders pattern. (There is an equally nasty looking bear flag pattern on that right shoulder too, so this crash may be far from over!) Gold and silver were also down today, especially silver which shed another 16%. Meanwhile, back in the more “traditional” economy, bonds and the dollar were both bid pretty hard on what I’m guessing was a “flight-to-safety.” De-dollarization? Perhaps, but maybe not while Bitcoin, gold, and silver are all . . . what is it Tom Petty used to sing . . . “Free Fallin’.”
I didn’t know Bitcoin’s blood looks like tomato sauce…lol…
A Bitcoin is nothing more than a claim of “ownership” to an entry in a distributed database. I don’t understand why people are will to part with hard earned cash for that… Yes, there are rules for creating a new entry in the database, but so what?
Reminds me of the money spent on “lots” in the Metaverse.
Silly as it seems now, I gotta say, the initial rollout trailer for Yuga Labs’ “Otherside” meta-world was awesome to the extent it was exactly what Bored Ape fans wanted in a trailer.
You know how, as a fan of something (anything), you invariably have in your mind a conception of what that something should be, but just as surely, you’re disappointed (e.g., you wait six months for the official trailer of a movie you’ve been waiting decades for someone to make and you finally get the trailer and it’s not what you had in your head)? Well, Yuga didn’t disappoint.
This was peak Metaverse: https://www.youtube.com/watch?v=qt1equGhkQE
Of course, it didn’t really pan out, but dammit, they knew what everyone was thinking. If nothing else, that crew were marketing geniuses.
Never dove in as deeply as you, but hours after Zuckerberg’s speech I did copyright some metaverse names related to my music projects.
Nor is it totally forgotten. My spell checker still knew the word and how to spell it properly.
” who never met a grift he didn’t want in on”….Perfect !