Does Bitcoin Boom Mean ‘Better Gold’ or Bigger Bubble? QuickTake

Bitcoin investors have had a wild ride. The initial price, set in 2010, was less than 1 cent. It’s since traded for tens of thousands of dollars having surged 305% in 2020 -- but only after losing almost three-quarters of its value in 2018. Once seen as the province of nerds, libertarians and drug dealers, Bitcoin these days draws millions of dollars from hedge funds and companies, while PayPal lets consumers use it to purchase goods and services. The surging price could reflect recognition by the financial community that so-called cryptocurrencies -- digital forms of money -- can be useful, and that Bitcoin in particular can fill the role of gold as a hedge against inflation better than gold can. Or it could just be a repeat of Bitcoin bubbles of the past.

It’s a form of money that’s remarkable for what it’s not: It’s not a currency you can hold in your hand. It’s not issued or backed by a national government. At their core, Bitcoin and its imitators are sets of software protocols for generating digital tokens and for tracking transactions in a way that makes it hard to counterfeit or re-use tokens. A Bitcoin has value only to the extent that its users agree that it does.