The cryptocurrency has, for most of its short life, been the fizziest of financial assets. The price soars, crashes, and soars again, before collapsing spectacularly. It is a constant roller-coaster, inspiring its true believers, and confirming the worst fears of its critics.
Over the last six months, however, it has barely moved. And, paradoxically, its dullness is sort of interesting. True, with tech stocks crashing, it may be about to collapse all over again. But right now it is looking more like what its creators always said it would be – a store of value and an alternative currency.
Energy prices have been on a wild ride. The stock market has entered a severe bear market. The dollar has soared, and sterling crashed so badly it took out a prime minister as collateral damage. So far, 2022 has been a dramatic year on the financial markets, with asset prices moving at such speed that even the smartest traders and analysts have had trouble keeping up with it all.
And yet, for the last few months, one has stayed on the sidelines. In the middle of June you could have bought bitcoin for slightly over $20,000 (£17,273). And if you want one today, it will still cost you slightly more than $20,000. Along the way, it spiked up to $24,000 briefly, then down to $18,000. But for six months the chart has been basically flat.
For the main cryptocurrency that is quite a change. For the 11 years it has been around, Bitcoin has always been in the middle of some form of mania. In 2011, it rose from $2 to $32 in frenzied trading, then fell back to a single cent. In April 2013, it soared again, rising to $260, before crashing back down to $50. In 2017, it went on an epic bull run, soaring all the way up to $20,000, then collapsing again, settling below $12,000, and remaining in the doldrums for most of 2018.
And then of course it went on another epic bull run through 2021, with the likes of Elon Musk, the world’s richest man, putting a huge chunk of Tesla’s assets into cryptocurrencies, before it collapsed all over again. Each time around, the price booms, then busts, and then the whole cycle starts all over again. There was one thing that Bitcoin didn’t do. Stability. Until now that is.
The same is true of the other main cryptos. Ethereum has barely moved over the last six months (it was trading at $1,400 in June and $1,500 now). Neither has Litecoin ($55 in June, and $54 now). With the sole exception of Dogecoin, which sparked to life last week as its main backer Elon Musk took control of Twitter, all of the cryptos have become very stable.
Indeed, this month Bitcoin was less volatile than either the S&P 500 or the Nasdaq.
There are lots of potential reasons for that. One is that there has been so much wild price action elsewhere that it has simply been sidelined. The hedge funds and speculators have concentrated on other assets and don’t have the time to devote to relatively minor assets. Perhaps it has finally broken free of the rest of the stock market. Or maybe it has become more like the precious metal it was originally created to emulate.
“It’s likely that ‘digital gold’ – Bitcoin – can decouple and trade independently like gold,” Dan Morehead, chief executive and co-chief investment officer at Pantera Capital argued in a note to investors last week. “In the first rising interest rate environment in 42 years, there will be a desire to invest in things that don’t have to continue to go down as the Fed unwinds its twin mistakes.”
True, it is quite possible that this is just a temporary lull. The tech stocks have been crashing spectacularly so far this year. Meta, which owns Facebook and WhatsApp, has lost 70pc of its value since January. Amazon has lost almost half its value. The Nasdaq technology sector is down by 40pc so far this year.
With the economy stalled, and growth slowing, no one thinks the tech companies are about to recover any time soon. Bitcoin is so closely tied into the wider technology industry that it will be very hard for it to maintain its value while everything else associated with the internet is crashing in value. If it suddenly halved in value, no one would be very surprised.
That said, there is no question that this time around something different is happening. Bitcoin has now been through four major bull and bear cycles, and each time the price has recovered, and it has now hit a long period of stability. That is not quite like any other investment mania.
The price of tulips never recovered after that bubble burst, neither did the South Sea Company, and more recently, the Japanese market, the greatest post-war bubble, is still a long way short of its 1989 peak. While Bitcoin was swinging wildly in price, it was very hard to see what kind of asset it was, or whether it was really an asset at all.
But if the price is stable then it will start to look a lot more like what its original promoters always said it would be – an alternative currency. And with inflation raging that might be more valuable than ever.