Bitcoin's mirage of legitimacy gets entrenched

Since the beginning of 2023, the price of one bitcoin has risen from USD 16,663 to 42,800, 2.5 times. Some fringe stocks aside, this is the world's best-performing asset class for the year. Since this 'asset class' is fake money that has no use except blind speculation and crime, this rise in Bitcoin's price should bring no joy to any financially sensible person.

There has been no honest reckoning for crypto after the FTX scandal, the criminal case of the FTX founder, and the recent legal troubles of the Binance founder. These debacles do not seem to have sounded the death knell for cryptocurrencies as one might have hoped. This shows that these financial abominations may remain permanently embedded in the global financial system. The fact that FTX managed to squander billions from investors across the world and Binance was basically run as a money-laundering racket. Yet, this catastrophe did not fundamentally undermine cryptocurrencies, revealing how enticing the lure of speculative profits can be. The prevailing optimistic view is that cryptocurrencies are a valid asset class and that, despite regulatory concerns, these issues will somehow resolve themselves. The legal route to the US financial industry running Bitcoin ETFs already seems clear. Likely, this surge in Bitcoin is partly the result of the creeping legalisation that is going on in the US.

Thus, a more significant surge in crypto values will probably happen soon. This would further endanger the savings of less informed investors seduced by visions of easy returns. Overall, it is deeply troubling that cryptocurrencies have gained widespread legitimacy rather than facing rejection - their establishment in mainstream finance promises more instability and threat to individual investors rather than progress.

Over the past 18 months, countless fringe cryptocurrencies have become worthless, many collapsing entirely. However, far from damaging Bitcoin's reputation, these failures have perversely bolstered its image as a supposed bastion of stability. The fact that Bitcoin's value can still double or halve randomly means it remains well-positioned to lure in newcomers with the prospect of speculative profits. This exploitative role is one Bitcoin will likely continue playing indefinitely. Looking at Bitcoin advocacy across social media, the various debacles and aftermath have, paradoxically, been spun as beneficial for Bitcoin. Advocates now argue that surviving this crisis proves Bitcoin's resilience - that if it can withstand all this, it can endure anything.

This is a false argument. It ignores the fact that Bitcoin lacks inherent value and productive utility. Its price swings remain dependent on hype and the influx of new investors rather than fundamental economic drivers. The recent failures reaffirm the systemic risks of cryptocurrencies built on such shaky ground. Yet Bitcoin proponents cherry-pick survival as validity, enticing the next wave of speculative investors even as the absence of protections or transparency raises further red flags about the health of these markets. In truth, Bitcoin emerging unscathed from fellow cryptos' collapse signals not resilience but a landscape skewed toward enabling more exploitation. Wall Street's embrace of Bitcoin as a valid investment signals a new channel through which money can flow from the ordinary investors' pocket into the maw of the fatcats.

Luckily, at least in India, crypto activity has been severely curtailed by the taxation measures that the government has taken. The tax measures have effectively become a ban without a ban. While an outright ban would have been better, the rampant normalisation of crypto speculation has come to a halt. The incessant online and TV ads targeted at luring the financially naive have disappeared. Of course, the rules of human nature don't change. Cryptomania taps into greed and enables the exploitation of that greed by others — one way or the other, that will continue.

Also read: Bad news: The crypto racket will survive