This price action has not gone unnoticed. With bitcoin price rallying, cryptocurrency bulls appear reenergized citing technical indicators such the "super guppy" and "overbought conditions", that they believe should lead to sustained gains following the sharp rally in bitcoin from the December lows. Financial media and crypto market commentators have been busy publishing articles that in our view "fit the narrative to the price," by trying to explain the sudden bitcoin surge in terms of institutional buying, pension fund allocations, central bank stockpiling, or some other non-provable reasons.
But has anything in the world of cryptocurrencies really changed, other than the price? We don't think so.
As we wrote in Cryptocurrencies: Beneath the bubble (12 October 2017), "...Currencies in themselves have no natural value...Currencies only have value when they can buy things that are useful...".
The two most important and largest classes of economic transactions (and therefore most useful) are labor and taxes. In our view, until labor and governments are willing to adopt cryptocurrencies as payment, we don't think they satisfy the first requirement of a currency. Cryptocurrency transaction processing still seems too slow and too expensive, especially given the volatility of many coins.
We similarly believe that cryptocurrencies aren't viable stores of value. Cryptobulls' arguments often hinge on the notion that since most cryptocurrencies have a finite supply, their value cannot be debased over time by central monetary authorities. This may be true, but it ignores the fact that while the supply of any individual cryptocurrency is finite, there is an infinite supply of cryptocurrencies. The volume of initial coin offerings (ICOs) reached USD 22.5bn in 2018, or 3x the cumulative life to date issuance of all ICOs. With unlimited supply, is it any surprise that Bitcoin's price and even its value relative to other cryptocurrencies has been volatile?
So our bottom-line view on cryptocurrencies is unchanged. We do not view cryptocurrencies as currencies. Simply put, bitcoin and its kin are not mediums of exchange and are not stores of value.
We believe our skeptical view has gained more acceptance, but the cryptobull case argument has now somewhat shifted to "OK, bitcoin isn't a currency, but [it] is an asset."
Indeed, many crypto-bulls celebrate that bitcoin and other alt-coins have had their bubble period of irrational expectations and point towards past asset bubbles and their subsequent recoveries as a potential template for cryptoassets. The argument here is that bitcoin has gone through its bubble phase and is ready to rise phoenix-like from the ashes just as other assets and indices did in the past.
This has led to no shortage of charts overlaying cryptocurrencies' crash and recent recovery against other notable market crashes such as the Nasdaq index from 2000 (which we had a front seat for) and other asset/market bubbles. We did a chart, too, just so we didn't feel left out.