Bitcoin’s corona boom and the future of money

It may just be a coincidence, but Bitcoin emerged just a few months after the mighty Lehman Brothers filed for bankruptcy in September 2008, heralding the West’s Great Recession and eliciting a great gush of liquidity from central banks that sceptics saw as an overstretch of fiat money. The big flaw of a currency unbacked by any valuable, in their view, was its vulnerability to oversupply and thus eventual loss of purchasing power. Like gold, might value not be retained more reliably by a token-of- exchange whose scarcity was insulated from fallible human intervention? It is not clear exactly what motivated Bitcoin, a privately-created cryptocurrency based on blockchain technology that is reputed to have its supply restrained by its digital design, but its 2020 boom after the covid crisis began to spawn trillions of dollars of extra cash has been too spectacular to ignore. On Monday, it hit an all-time peak of $19,800 per unit, surpassing its previous high of 2017. It is up by 140% so far this year and could be headed higher still.

Bitcoin’s vertiginous rise is not difficult to explain. In essence, it reflects investor dissonance with frenetic cash creation by central banks, globally.