What is going on with Bitcoin?

What is Bitcoin? Obviously joking here. If you are not familiar with the most popular cryptocurrency, you must be quite disconnected from the world. Which is not a bad thing in all fairness. But c’mon man, even your grandma has heard of Bitcoin. It is insanely popular these days. Everybody is talking about it. From TikTok teenagers (and their bad personal advice) to BlackRock executives. For those that have been close to the crypto markets since the early days, it has been a dramatic rise. Even more dramatic if you were here when it was below $100 and did not buy into it. But is that worse than having bought into it and losing access to your wallet? That’s debatable. But maybe with the recent price rally, you are just wondering: what’s going on with Bitcoin? And you might also be thinking: who created Bitcoin and why?

One word: FOMO

In December 2017, the fear of missing out (FOMO) was retail-driven. At that point in time, Bitcoin peaked at nearly $20,000 and then collapsed in a matter of weeks to stay around $5,000-$10,000 for a while. However, since September 2020, the price of a Bitcoin has exploded to almost $40,000. It is now financial institutions that fear that they are missing out. To be frank, they are right from that perspective: if you are a financial advisor, and you have not told your clients to buy into cryptocurrencies yet, you have been missing out on growth for years. Whatever you think about it, the asset class went from 0 to USD 1 trillion in about 10 years. So, if you have not allocated funds to it, you technically missed out.

It does not imply that it will stay at that level. But it does mean that you have missed on past growth, in USD terms. Big corporates are therefore now fearing that it might grow even more, notably Bitcoin, and that they should get in before it is too late. And most probably clients are asking their financial advisors why they are not allocating some funds to it. We went from stark rebuttal to the biggest players entering the fray, like investment management behemoth BlackRock which just added Bitcoin as a possible investment for two of its funds.

Why do people buy Bitcoin?

There are several reasons why people buy Bitcoin now. It is not the anarchists any more that care about crypto. Funnily enough, if you read through the white paper from Satoshi Nakamoto, who wanted to build a “peer-to-peer cash system”, this has nothing to do with it these days. Bitcoin is not hailed as a cash alternative. Let’s have a look:


You believe that one way or another, inflation is going to shoot up. At the moment, inflation is depressingly low. But the Fed, ECB and others are printing money like there is no tomorrow. So surely, at some point we will see some real inflation. Real as in consumer price type of inflation, because there is definitely already some asset price inflation. So you buy Bitcoin as a store or reserve of value. That argument is quite believable, and it is for the same reason that people buy gold. It is inflation-proof.

State censorship

This one is harder to buy into. It is maybe true for now, but it won’t be forever. We have seen it in a few legal cases already, governments are seizing Bitcoin wallets like they would seize any other assets. Rightly so. For instance when the FBI shut down Silk Road, and ended up with a lot of Bitcoin wallets. So don’t buy into Bitcoin if you think that it will shield you from the state. It won’t. The reason why governments like the US want to introduce KYC for wallets is to know who has what, mainly for tax purposes. In most countries you have to declare to the tax authorities the cash (fiat) that you hold above a certain threshold, to prevent money laundering. That’s the same logic.

That’s also why governments around the world have not outrightly banned Bitcoin: an asset that appreciates in value means capital gain tax if you sell, or wealth tax (if applicable). More on that below.


Probably the weakest argument because you are in charge of the security of your own money here. It is theoretically uncrackable but there are ways to get into your wallet. How is that better than having a financial institution looking after it? They spend billions every year making sure that nothing happens to your cash. And if something does happen, schemes are here to protect you and the state steps in. Funnily enough, more and more the crypto industry is reinventing the wheel. You have custodians, etc. It looks very similar to the good old financial services industry. Also, have you ever heard of quantum computers? It won’t happen tomorrow, but they will enter your crypto wallet very easily.


At the moment, it’s great. You buy some Bitcoin, make 200%, sell and cash the profit tax-free. But do you wonder why Governments around the world are fine with Bitcoin and other cryptos at the moment (except some rare exceptions)? Tax. They see this as a big potential for capital gains tax. Or as part of your asset base for the purpose of your wealth tax in some countries. They think about tax revenues basically. So if you think that crypto will somehow shield you from the taxman, think again. There are two things you can’t avoid in life: death, and the taxman.

Is Bitcoin a well-functioning market?

With all this craze, one might think that Bitcoin is a well-functioning market. Not really.

First off, it is a very concentrated asset class, with 2.5% of addresses holding on to 95% of Bitcoin. The caveat is that you need to take into account that some of these addresses are exchanges and cold wallets. But even with that in mind, it is still concentrated into the hands of a few “whales”.

But another way to look at the functioning of the market: 92% of minted Bitcoins to date, that is 17.1 million out of 18.6 million, are sitting in wallets that have been dormant for more than five years. You have a chunk that is people that have lost access to their wallet. And some true believers. What about the rest? Who knows. So the recent price rally is due to many participants holding very little supply as a percentage of total. You also realise how much “wash trading” is going on because with reported daily volume of c.$80bn and price of c.35k, that’s over 2 million Bitcoin traded. Quick maths, that is more than the ‘non-dormant’ supply. Crypto research firm Messari.io gives an ‘adjusted volume’ of c.$13bn per day.

The million-dollar (or 30 Bitcoins) question, will it ever become a well-functioning market?

What about the bright side?

Unless you are Nouriel Roubini, it is not all doom and gloom.

Because although it is true that it has no intrinsic value, that is that the price of a Bitcoin is what others think it is worth, that is the case for most things in life. Econ 101. Assets that are considered reserve of value, like gold, are only worth what the majority of people think they are worth. But that’s true of a flat in Manhattan too. Or what people are willing to pay for an iPhone. If tomorrow we all agree it’s worthless, it’s worthless. Same for the almighty Dollar. That’s the reason why so many developing countries’ currencies are not worth much, like the Venezuelan Bolivar. The collective agrees that it is worth close to zero.

Could there be a reversal of point of view towards zero for Bitcoin? Yes there could. Nothing is impossible. But at this stage, it would be a major one, given how much money there is involved.

Bitcoin could also become an efficient market as it matures. Nothing says that Bitcoin will not become more liquid and stable over time. That the big wallets will not start to be more active, and that the price will stabilise. It is still very young as an asset class, so why not becoming the true alternative to gold? Gold’s only value is what we say it has, the same as Bitcoin. The major difference is the length of time on the market and banks like JPMorgan believe it could become a gold alternative.

The not-so-bright side

It could collapse. There could be a reversal of fortune and people believing that it’s value should be zero. Some people really believe that. And it is frankly not unprecedented.

That would be a major collapse, but you should read about the Tulpenmanie or Tulip Mania, as many draw comparisons with the cryptocurrency industry. It was completely nuts, although we are not there yet with Bitcoin. And back then, the Tulip pundit would probably have told you that it can only go one way. Up. There is also the problem of concentration and inactivity as stated before. What happens if one or several of these massive wallets suddenly dump everything? Or if Bitcoin fails to adopt its protocol and quantum computers come along?

Who benefits the crime?

Not a crime as everybody’s concerned but let’s get down to it. We have the background of what is happening right now. With all that has been said, there are a few questions on everybody’s lips: who had interests not only to create Bitcoin, but to advocate its adoption? From a 0.1 cent weird stuff to a $30,000 gold alternative. In short, a police inspector would ask: who benefits the crime? *Insert Horatio Caine putting his sunglasses on*

Photo by Giorgio Trovato on Unsplash

The main theory circulating is that one or several geeks are in fact behind the pseudonymous Satoshi Nakamoto. They would be the ones who created the famous/infamous Bitcoin. It could be Hal Finley, a pre-bitcoin cryptographic pioneer, Nick Szabo, another crypto enthusiast, or the Australian academic Craig Wright. It could be a mixture of them all. One thing is certain though: Craig Wright is convinced that he is the sole inventor and master of Bitcoin. The Bitcoin community not so much. Nonetheless, he sent a few letters reminding everybody that he has registered the copyrights. Which lets be clear, does not mean he has invented Bitcoin. “We do not investigate the truth of any statement made” says the U.S. Copyright Office. However, Wright has been smart enough to register the copyrights before everybody else.

Will we ever know the truth?

As the white paper states, it was created as a peer-to-peer cash alternative that does not rely on the banking system. But, is it though? Looking at it, that is not the case at all right now. It is a speculative investment. So could it be that this was a facade, a deception all along? And that the real inventor of Bitcoin just wanted to make a ton of money? Because that’s what happened. Early adopters, all these dormant accounts that make 90%+ of the total supply, have theoretically a lot of money as they rode the wave. Whoever they are.

Were they lucky? Or was it the plan all along? If it was planned, a few geeks do not fit the bill. Or maybe they do. Mark Zuckerberg probably does not strike you as an incredible businessman, but rather a nerd. But he is one of the richest man in the world. The real inventor of Bitcoin could also be one of the most successful scammer of all time, that will eventually dump everything and run away with his millions. What happens when the few top wallets dump their Bitcoin day after day (because they could not in one day)? Party is over folks.

Will we ever know the truth? Maybe. Maybe not. The true anonymous inventor might have died a few years ago, and with her or him the secret of it all…