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Can someone remind crypto that it’s supposed to be dead? The digital asset market, widely written off as a bubble that burst two years ago, is having one of its wildest rallies ever. The price of bitcoin, the original cryptocurrency, has risen by nearly 60 percent in the past month. This morning it reached a new all-time high of about $69,000, breaking the previous record, set in November 2021. The rest of the crypto market isn’t far behind.
This feels impossible. Fifteen years into its existence, the technology has yet to demonstrate any serious use case. Its value surged during the pandemic, when investors with easy access to money and plenty of idle time fueled many a speculative frenzy. Then the Federal Reserve began raising interest rates, and the crypto market abruptly tanked. Sam Bankman-Fried, whose face used to gaze out from full-page New Yorker ads, now awaits sentencing for fraud from a Brooklyn jail. Celebrities who shamelessly hawked crypto exchanges and NFT collections have gone quiet, in some cases under legal duress. The 2022 Super Bowl felt like one long crypto ad; by this year’s game, the world had moved on to other speculative fads—generative AI, Taylor Swift—and crypto seemed like just another faded relic of the zero-interest-rate era.
And yet even after innumerable crypto scandals and lawsuits, the prices of bitcoin, ethereum, and other major currencies never fell below late-2020 levels. They had been steadily regaining their value long before the recent super-spike. The fact that no one can agree on what crypto is even for hasn’t kept the market capitalization of all cryptocurrencies from surpassing $2.5 trillion. Indeed, its utter pointlessness may have even helped. The lack of consensus about crypto’s purpose might be the very reason it never dies.
The present surge has two immediate causes. The first is the Securities and Exchange Commission’s reluctant decision to begin approving bitcoin exchange-traded funds, which has opened the sector to traditional financial institutions and given it a new sheen of legitimacy. The second is that bitcoin is approaching one of its periodic “halvings”—moments, programmed into its source code, when the rate of new bitcoin production gets cut by 50 percent, which reliably causes demand to jump. But neither of these factors explains the deeper mystery: How is crypto even still a thing?
Crypto’s staying power is in part a consequence of its design. No central bank was needed to verify who owned how much bitcoin. Thanks to cryptography and some clever game theory, the network itself could keep track of that. Technologically, it has no single point of failure: Every computer in the network maintains a complete record of every transaction, which means no single entity can shut it off. This was a huge part of bitcoin’s early appeal. It was decentralized, but could still be trusted as a store of value. But to what end? What was it for?
Over the years, any number of answers have been offered. An early one was crime: A currency beyond the reach of government, whose every transaction was anonymous, seemed to lend itself to illegal business. Another early dream for bitcoin was that it would replace the U.S. dollar as the world’s global reserve currency. In theory, bitcoin’s scarcity—its total supply asymptotically approaches 21 million—makes it inflation-proof, unlike a paper currency printed by central bankers.
As cryptocurrencies proliferated and mutated over the years, so did the justifications for their existence. Newer, non-bitcoin digital assets, built with more technological features, promised to be more than just a form of money. Crypto would be a boon for the developing world by making it easier and cheaper to send cross-border payments to relatives back home. Crypto would be the basis of something called Web3, a new, decentralized version of the internet built on the blockchain and immune to dominance by Big Tech oligarchs. Decentralized autonomous organizations, or DAOs, financed by crypto would enable new forms of collective action to benefit mankind.
All of these theories had obvious flaws. Conducting business on a public database that logs every transaction in perpetuity turns out not to be the smartest way to commit crimes. With its wild price fluctuations, crypto looks nothing like currency—in El Salvador, where bitcoin was adopted as legal tender in 2021, few people actually use it—and has proved an unreliable inflation hedge. Crypto remittances are useless if they can’t be redeemed for local currency. Web3 is clunky and confusing and has done nothing to undermine Big Tech. DAOs are neither decentralized nor autonomous, if they are even organizations. And so on.
The trouble is that convincingly debunking all the pro-crypto rationales at the same time is impossible. Each rebuttal can itself be rebutted, and by the time you finally wrap your head around why, say, the technical complexity of interacting with blockchains inevitably creates demand for the very intermediaries crypto is supposed to obviate, you will have forgotten whether you believe the hype around zero-knowledge proofs or Layer 2 blockchains. Crypto’s profusion of half-baked rationales, long a source of derision and mockery, turns out to be perhaps its most powerful secret weapon. Different constituencies have different reasons for buying in, which makes the argument for crypto resilient. It, too, has no single point of failure.
People trying to explain crypto’s staying power often compare it to other assets that, like gold, diamonds, or fine art, have little intrinsic value apart from collective societal delusion. But gold, diamonds, and fine art are status symbols. Crypto is not, which is why its owners sometimes trade it in for Lamborghinis and yachts, which are. Crypto is built on a different sort of collective delusion: that whatever its price may be today, someone will be willing to buy it for more tomorrow. Which is turning out to be not much of a delusion at all.
