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Left for dead, Bitcoin went on a tear and sparked a new mania

Bitcoin true believers will tell you they never lost faith.

Bloomberg|
Updated: May 17, 2019, 09.21 PM IST
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By Vildana Hajric

The Bitcoin bulls came back. Literally.

Little Dude, a real-life bovine housed in a make-shift pen in a Manhattan ballroom, greeted crypto enthusiasts at the Magical Crypto Conference last weekend. He was brought by the anonymous Bitcoin Sign Guy, who offered 21 “Buy Bitcoin” replicas -- pen on yellow legal-pad paper -- for roughly $8,000 a pop. Only six were left at the end of the week.

Bitcoin true believers will tell you they never lost faith, but a 50 per cent rally earlier this month has awakened the animal spirits that roamed in the halcyon days of 2017, when the digital currency dominated Thanksgiving conversations and sparked one of the biggest asset bubbles since the financial crisis.

Now, the hype machine that fed the frenzy has kicked back into gear. At New York’s Blockchain Week, one of the industry’s biggest gatherings, the Winklevoss twins hawked crypto swag to promote their payment network. Fund manager Mark Yusko dusted off his call for Bitcoin $400,000. A presidential hopeful spoke of digital currency’s inevitable future. Even a recent hack that saw $40 million evaporate was praised as evidence of blockchain’s immutability. On Sunday, the venerable news magazine “60 Minutes” will air a segment to its gray-haired audience reminding them of Pizza Guy.

“A lot of people say “party like it’s 1999,” Yoni Assia, chief executive of online exchange eToro, said at an industry gathering Tuesday during Blockchain Week. “For crypto, people are starting to feel that maybe it’s time to party like it’s 2017.”

Crypto prices soared that year, with Bitcoin alone gaining 1,400 per cent. It was dubbed “digital gold” and mania over its performance drove the price to almost $20,000. Entrants popped up nearly daily, with hundreds peddling their new digital coins. All that was followed, of course, by the colossal crash of 2018 that wiped out billions in value and pushed many to abandon the space altogether.

But just when Bitcoin appeared to have been left for dead by mom and pop investors, it went on a tear, doubling in price this year to more than $8,000. Despite a number of theories, no one seems to know exactly why, or really care. More recently, prices have surged since President Donald Trump ratcheted up his trade rhetoric against China, leading to speculation investors are seeking shelter in digital assets as other currencies such as the yuan depreciated.

A stronger acceptance of digital assets by institutional mainstays and old school Wall Street firms has also attracted attention. E*Trade Financial Corp. is said to be readying cryptocurrency trades on its platform, with Fidelity Investments soon to follow.

“It’s an exciting time,” Andrew Yang, a Democratic presidential candidate, said in an interview Wednesday at the Consensus conference. “We’re still in the early stage of the frontier.”

Of course, this being Bitcoin, nothing is straightforward -- the rally eased this week, and the cryptocurrency has dropped more than 10 per cent in the past two days.

This year’s events had a more subdued feel after the 2018 gathering that featured rented Lamborghinis parked outside the conference hall. A guy dressed as a big yellow Bitcoin was swiftly kicked out of the building by security. Still, the bull in the ballroom showed that enthusiasts retained their cult-like devotion.

“I did it to make people happy and think about Bitcoin, to convey my bullishness,” said the Bitcoin Sign Guy, who has kept his identity anonymous after gaining fame for holding up a “Buy Bitcoin” sign in 2017 during one of Janet Yellen’s televised congressional appearances.

Not even a spate of negative news could dampen the recent enthusiasm. The market has shrugged off scandal after scandal, including allegations against Tether, one of the world’s most widely traded digital currencies, which has been accused of covering up losses of about $850 million. Similarly, crypto exchange Binance, one of the largest, recently admitted that hackers stole 7,000 Bitcoin worth about $40 million in a single transaction.

The notion that bad news negatively impacts prices has been turned on its head, said eToro’s Assia. Whereas 2018 was the year of good news and bad prices for crypto, bad news such as exchange hacks don’t seem to matter. “A lot of people are feeling very hopeful,” he said.

But in a sign that the damage done is still deeply felt, the Consensus gathering only attracted about half as many people as in the year prior. About 4,450 faithful attended the conference this year, said Jacob Donnelly, managing director of digital operations at CoinDesk. That compares with 8,800 at last year’s gathering.

“A lot of it is tied to the market. When the bulk of people’s assets is tied to an asset of crypto of some sort, you’re going to have crazy volatility,” Donnelly said. “The negative is that sometimes things are slower because of fluctuations.”

Since Bitcoin’s stunning crash last year, a number of start-ups that kept portions of their funds in digital assets have shuttered their operations. That’s brought about a different crowd and many new entrants to this year’s Consensus gathering, said Montreal-based Jonathan Zeppettini, international operations lead at Decred, a digital currency.

“This year, you have more serious people showing up, who have a more long-term view,” Zeppettini said in an interview. “There are probably some scams still circulating, people trying to raise money. It’s harder than ever probably because people are more critical now.”

To be sure, it was just a few months ago that the space was left for dead as serious investors and speculators alike fled. And the deep wounds left by the 2018 crash are still festering, leaving many worried that the market’s just one regulatory decree away from annihilation.

“It just goes to show cryptocurrency has a very speculative nature still,” said Zeppettini. “There’s still animal spirits involved. The price goes up and people start to think ’Hey, this stuff’s legit again, maybe I should think about a career in blockchain.’ The price goes down and they start to think ’It’s hopeless. I’m going to throw in the towel.”’
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