Bitcoin’s meteoric rise following Donald Trump’s election victory has catapulted the cryptocurrency into new territory, with its value soaring 42% to approach $100,000. Amid this unprecedented surge, questions abound about its sustainability, with critics warning of a potential bubble poised to burst.
The narrative driving this momentum is tied closely to Trump’s unexpected embrace of Bitcoin. Once a skeptic, Trump has repositioned himself as one of its most vocal champions. On the campaign trail, he vowed to transform the United States into a “Bitcoin superpower,” pledging subsidies for mining and promising to remove Securities and Exchange Commission Chair Gary Gensler, a critic of the crypto industry, on his first day in office.
The support from Trump has not only bolstered Bitcoin’s legitimacy but also elevated its status as a coveted asset. Michael Saylor, executive chair of Microstrategy, the largest corporate holder of Bitcoin, has seen his personal wealth balloon to over $10 billion. Saylor has predicted a staggering $13 million valuation for Bitcoin by 2045, though such claims lack detailed reasoning beyond optimistic speculation.
Bitcoin’s newfound allure goes beyond its role as a digital asset. It has entered what some economists describe as its “Veblen good” phase, where its desirability increases with its price. Named after sociologist Thorstein Veblen, this concept traditionally applied to luxury items like rare supercars or designer watches now applies to Bitcoin, which has become a digital badge of status among the elite.
“President-elect Trump has conferred legitimacy on the digital token,” noted Natale Labia, a global investment firm’s chief economist. Labia highlights how Bitcoin, once a symbol of rebellion against traditional finance, has now become a status marker for the so-called “bro-tocracy.”
However, the sustainability of this “Veblen era” is under scrutiny. Critics point out that Bitcoin’s speculative nature, combined with stagnating liquidity in the monetary system, could spell trouble. Unlike previous booms fueled by excess liquidity, the current rally lacks the same financial underpinnings, raising concerns about its longevity.
“If inflation runs higher and the Fed is forced to start tightening, it could presage its collapse,” warned Labia. With rising yields on US Treasury bonds, the digital asset’s appeal may wane, potentially triggering a collapse reminiscent of past speculative bubbles.
For now, Bitcoin’s momentum shows no signs of slowing. But as with all bubbles, the question remains: who will be left holding the bag when the tide finally turns? The crypto world watches and waits, grappling with the uncertain future of its prized digital currency.
