Bitcoin mania returns, but is it all smoke and mirrors?

Bitcoin’s rollercoaster narrative has taken another sharp turn, stunning skeptics and enthusiasts alike. Just when the world thought Bitcoin mania was a done deal, especially after the high-profile convictions of Sam Bankman-Fried, former CEO of FTX, and Changpeng Zhao of Binance, the digital currency has sprung back with a vengeance. Is this resurgence a genuine sign of enduring value, or are we witnessing a mirage in the volatile landscape of cryptocurrency?

A Surprising Surge Amidst Controversy

Post-trial, Bitcoin’s value has skyrocketed by approximately 55%, a figure that seems to thumb its nose at the naysayers. This resurgence isn’t limited to Bitcoin; other digital currencies, once thought to be on the brink of collapse, are witnessing a similar upturn. Take FTT, for instance, the token linked to the now-defunct FTX, which has more than doubled in value. Or consider Solana, suffering collateral damage from the FTX fallout, which has astonishingly quadrupled.

Silicon Valley’s venture capitalists, who briefly distanced themselves from the term “Web3” — a concept suggesting crypto’s dominance over the internet — are back at it, zealously promoting this visionary idea. NFTs (Nonfungible Tokens), previously the butt of jokes, are back in vogue. Those cartoon chimps and wizards aren’t just digital art; they’re now coveted investments. Even Axie Infinity, a play-to-earn game accused of misleading marketing, is supposedly poised for a comeback.

Bitcoin ETFs: A Game Changer or a Facade?

The recent upswing in Bitcoin and its crypto cousins is largely attributed to investor enthusiasm spurred by the Securities and Exchange Commission’s (SEC) nod to Bitcoin ETFs. This move, marking a significant milestone, allows investors to dabble in Bitcoin on the stock market, much like they would with traditional index funds. But here’s the kicker — the approval came after a hack, suggesting that not all that glitters in the crypto world is gold.

Critics are up in arms, viewing the SEC’s approval as a historically questionable move, potentially putting unsuspecting investors at risk. Dennis Kelleher, a prominent advocate for financial regulation, expresses concern over the SEC’s decision to greenlight a financial product he deems speculative and volatile. On the flip side, the crypto industry hails this as a legitimizing moment. Brian Armstrong, CEO of Coinbase, sees this as an affirmation of crypto’s permanence and potential.

But let’s not get carried away. SEC Chairman Gary Gensler’s approval wasn’t exactly a ringing endorsement. Gensler points out a key difference between traditional financial instruments backed by precious metals and Bitcoin ETFs — the latter, according to him, lacks societal utility and is riddled with issues like volatility and its use in illicit activities.

Coinbase’s recent trade volumes also tell a sobering tale. Their consumer trading volume, which hit a high of $177 billion in 2021, plummeted to a mere $11 billion in the latest quarter. This drop suggests that, despite the buzz, the actual demand for digital currencies might be waning.

Then there’s the theory posited by David Gerard, a crypto skeptic and author. He argues that the recent price hike in Bitcoin is less about organic market demand and more about institutional manipulation. In his view, Bitcoin’s price movements are less about market dynamics and more about “shenanigans” involving substantial loans from controversial stablecoin issuer Tether.

Despite these concerns, advocates are optimistic that the new ETFs, with their lower fees and association with reputable financial institutions, will alter public perception of crypto. But it’s hard to ignore the problematic aspects of this development. On one hand, these ETFs could detract from the crypto exchanges themselves. Why go through the hassle of direct crypto transactions when ETFs offer an easier alternative? On the other hand, the crypto industry’s marketing strategies raise eyebrows. Are ETFs just the first step in a misleading journey for investors?

Vanguard Group Inc., breaking ranks with much of the industry, has refused to offer these new ETFs, arguing that crypto doesn’t fit into a well-balanced investment portfolio. This move underscores the skepticism surrounding the long-term viability of cryptocurrencies as a mainstream investment option.

In the end, those jumping onto the Bitcoin bandwagon post-SEC approval have seen their investments shrink. This scenario serves as a cautionary tale about the unpredictable nature of cryptocurrency and questions the role of blockchains in addressing financial system challenges.