Taking a look at the headlines from the last few months might make you think you’ve woken up again in 2021. Crypto fanaticism is growing as fast as cryptocurrencies prices they are, and it looks like another bull market has arrived. But despite the price surge, investors and skeptics alike continue to question the usefulness of cryptocurrencies.
Bitcoin, as usual, is leading this year’s cryptocurrency bull run. The world’s most ubiquitous digital currency surpassed its all-time high in March, reaching an eye-popping price of $73,750. This success can largely be attributed to two factors: the approval of bitcoin ETFs by the Securities & Exchange Commission in January and the upcoming bitcoin halving event, which will artificially limit the creation of new bitcoins. Investors hope that this event will help push prices further.
But as successful as this asset class has been in 2024, there’s one thing holding some people back from embracing cryptocurrency adoption: practical utility. In an age where a single bitcoin trades for more money than a brand new BMW, you still can’t use it to pay for things.
Is Bitcoin really money?
When it was created in 2009, bitcoin’s pseudonymous creator, Satoshi Nakamoto, intended the cryptocurrency to be a new mode of exchange and a replacement for fiat currencies like the US dollar. The blockchain technology on which it was built is intended to keep transactions secure and verifiable, and minting new bitcoins over time would introduce more liquidity. For its first 10 years, that’s how most early bitcoin enthusiasts saw it.
But as bitcoin prices have taken a surprising turn from just a couple hundred dollars to around $70,000, so has the digital currency’s expected utility. Now, it is seen less as a mode of exchange and more as a store of value, not unlike other scarcity investments like gold.
This change in attitude is visible in stories like the “bitcoin pizza” story, when in 2010 a holder paid 10,000 BTC in exchange for two pizzas. The recipient used it to pay for a trip. While the exchange celebrated the first use of bitcoin in a commercial transaction, the larger context is how they squandered the potential $365 million they would have had if they had kept the coins.
Bitcoin may have popularity and may be a trendy investment, but it has not yet become the product it was intended to be: a viable alternative to government-backed money. The question remains: when will Bitcoin be the digital world’s decentralized answer to the US dollar, but experts are taking the question even further, asking instead: Want Will bitcoin ever be a real currency?
Bulls and bears agree that bitcoin may never be a currency
There is a split among many economists and cryptocurrency experts over whether or not bitcoin will last as an asset class. But when Money spoke to two experts from each camp, it was clear that they agreed on one thing: Bitcoin could never become the currency it set out to be. Depending on who you ask, though, this possibility may not matter.
Many economists argue that it is not possible to justify the value of bitcoin. Dr. Bob Johnson, an economics professor at Creighton University, says bitcoin is peaking pricebut due to lack of accreditation and use case, it has no intrinsic aspect value.
“There is no use case for cryptocurrencies,” Johnson says. “People have to agree that it has value. The US dollar has value because it has the full faith and credit of the US government. Bitcoin doesn’t have that.”
Johnson also argues that even if the world agreed that bitcoin has some value, there would be little incentive for the U.S. government to accept it as a currency. “Do you think the US government will ever cede monetary policy to those mining bitcoin in their basements?” he asks rhetorically. He also notes that bitcoin’s supply is highly concentrated in the hands of a small number of holders, at odds with the idea that bitcoin can “democratize finance” in the way it seeks to do as a currency.
Furthermore, cryptocurrency is expensive and inconvenient to transact with. Between the volatility of bitcoin prices and the high fees required to exchange coins between parties, it is not economically feasible to use it as cash under the current circumstances. For these reasons, cryptocurrency skeptics say that bitcoin will never become a fiat currency like the USD.
In fact, even cryptocurrency enthusiasts admit that bitcoin will not be a real currency. “Volatility and high transaction costs… inhibit its practical use for everyday payments,” says Martin Leinweber, digital asset strategist at MarketVector Indexes. “Even with the development of layer two solutions, such as the Lightning Network, which aimed to address the scalability and cost issues associated with bitcoin transactions, the expected success has not fully materialized.”
Does it matter if bitcoin will never be a currency?
Johnson and Leinweber may both be of the opinion that bitcoin may not become a currency as it was intended to be. But unlike Johnson, Leinweber argues that bitcoin is currently being used as a store of value AND the use case of the coin, so it doesn’t matter whether it becomes a currency or not.
Leinweber says “the value of bitcoin as a hedge against economic instability” is what its holders value, not unlike gold. Bitcoin traders already have digital alternatives to the USD that offer practical utility, such as stablecoins or cryptocurrencies pegged to the price of the USD or other fiat currencies. He argues that “stablecoins will be the payment solutions, not bitcoin,” adding that “understanding bitcoin’s role as akin to digital gold, rather than as a primary means of payments as initially proposed,” is what investors will appreciate of bitcoin and will give it value.
And while projects like Bitcoin Beach in El Salvador offer enthusiasts the ability to pay bills, buy food and get haircuts using bitcoin as legal tender, large-scale utility is unlikely to be achieved.
What remains is a fundamental divide between cryptocurrency fans and skeptics over whether bitcoin’s value justifies its staggering price. Some say it has value as a decentralized digital version of gold. Others, like Johnson, say the value is irrational and compare bitcoin prices to the tulip craze in the 1600s, when flower bulbs cost fortunes.
Both sides say bitcoin is unlikely to become a fiat currency for one reason or another; I simply disagree that bitcoin – in its current state – is valuable enough to justify its price.
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