Since the advent of Bitcoin in early 2009, the world has been captivated by the concept of cryptocurrency. From its inception, two prevailing theories emerged: one posited that Bitcoin would serve as a refuge from governmental control, while the other, possibly favored by its mysterious creator, envisioned it as an alternative to a corrupt, unstable financial system that had just wreaked havoc globally.
However, as recent market events have shown, these theories have largely failed to materialize. Monday’s market meltdown starkly illustrated that cryptocurrencies often do the opposite of what they were intended to achieve.
While Bitcoin and other digital currencies might find utility in countries like Venezuela, where monetary policy has become so dysfunctional that even a can of mackerel holds more value than the local currency, these digital assets fall short as a substitute for money in regions with reasonably well-managed central banks. The architecture of Bitcoin is notably cumbersome; transactions can take minutes or even hours to process through the blockchain. Although third-party processors, like exchanges, can mitigate this issue, they effectively recreate the financial system that Bitcoin aimed to replace—minus the centuries-old safeguards against theft and abuse.
Bitcoin has thus evolved from a potential currency or banking system substitute into a volatile asset class. Within just the past year, its value has fluctuated wildly, ranging from approximately $25,000 to $70,000. The broader crypto ecosystem that has developed around Bitcoin and other digital currencies appears less reliable, more unstable, and fraught with corruption compared to the established banking system. Perhaps the most damning critique is that, in the grand scheme, it doesn’t matter much.
This volatility presents a significant problem for those who viewed cryptocurrency as a safe haven from government overreach. Many of these individuals sought a way to evade the scrutiny of tax authorities or the Drug Enforcement Administration, only to discover that crypto was far less anonymous than they had initially assumed. If investigators can link an individual to their Bitcoin wallet, the decentralized ledger becomes a comprehensive and incriminating record of all their transactions.
Other crypto enthusiasts, concerned about government-driven inflation eroding their savings, hoped that Bitcoin’s algorithmically controlled supply would render it immune to such threats. They imagined it could supplant inflationary fiat currencies or at least serve as a kind of digital gold—a safe harbor not just from inflation, but from global instability.
While Bitcoin may serve that purpose in places like Venezuela, where governmental mismanagement has decimated the economy and currency, its performance elsewhere has been underwhelming. In the spring of 2020, as the world sought safe assets amid the pandemic, gold soared while Bitcoin remained flat. Although Bitcoin’s value eventually rose, it’s difficult to argue that it provided a counterbalance to the economic turmoil. Indeed, Bitcoin’s price peaked in November 2021, only to plunge by nearly 50% while inflation continued to climb. In early 2023, as inflation began to subside, Bitcoin’s value quadrupled, further confusing the narrative.
Then came Monday. In what many see as the final nail in the coffin for the notion of cryptocurrencies as “digital gold,” Bitcoin’s value plummeted by 15%. As Bloomberg News’s Joe Weisenthal aptly noted, it behaved more like “three tech stocks in a trench coat” than a hedge against inflation or disaster. If that’s the case, why not just invest in tech stocks directly?
So, what exactly is crypto good for? It might help individuals evade currency controls that restrict the movement of wealth out of certain countries, but this only works as long as people in places like the United States and Europe are willing to exchange valuable local currency or goods and services for crypto. Additionally, it appears to be useful for collecting ransomware payouts.
Beyond these niche uses, however, cryptocurrency seems more like a digital slot machine than digital gold. It’s hard to shake the feeling that most people engage with it not because it serves a necessary function, but because it offers a novel way to gamble. In essence, Bitcoin may not be good for much beyond providing those with money to burn a new way to set it on fire.
Follow Megan McArdle @asymmetricinfo on X (formerly Twitter).
