Bitcoin bubble debate: History's largest or store of value?

Bitcoin: "History's biggest bubble", under scrutiny

There is a scene that repeats every time the price of Bitcoin plummets: someone looks at the logarithmic scale chart, takes a deep breath, and declares they are facing the biggest bubble in history, larger than the South Sea Bubble and Dutch tulip mania. The discussion starts precisely with that chart. From there, the debate becomes a clash between two narratives that do not listen to each other: those who see Bitcoin as an unbreakable store of value and those who compare it to a pyramid scheme in its terminal phase.

Is Bitcoin the biggest bubble in history?

The starting thesis is clear: Bitcoin is the biggest bubble in history, surpassing the South Sea and Dutch tulip bubbles. Those who hold this view do not ask to exit the market, but simply note a fact: the asset trades far above any rational valuation. Against this, the most repeated response is that the real bubble is the fiat system based on unpayable debt. In that reading, Bitcoin would not be the bubble, but the counterpart to money printed from nothing. A third group, more skeptical, reduces everything to pure speculation: well-sold smoke.

The most uncomfortable argument for enthusiasts does not come from a critic, but from data: iShares' IBIT was trading at $36.33 on March 22, 2024. This regulated vehicle exists because there is institutional demand. And if there is institutional demand, the thesis of a purely retail bubble wobbles.

Gold and Bitcoin: the comparison that never ends

The analogy with gold is the battlehorse of defenders. Bitcoin would be like gold, but more practical because it can be moved and also generates returns. The underlying argument is that it is the only asset in the world that does not inflate. Critics' response is devastating: gold turns $100,000 into $120,000 without letting you sleep poorly, while Bitcoin turns $100,000 into $25,000 or $300,000 depending on the moon. They add a painful detail: no serious investor puts $100,000 into Bitcoin because they don't need to.

The counterargument doesn't stop there. It is recalled that between November 2021 and January 2023, the asset fell by 75%. Those who held on sweated ink. Those who sold lost out. And those who only invested their pocket money slept better.

Can Bitcoin buy a house or a car?

Bitcoin's actual utility as a medium of exchange is the most debated point. Some argue it cannot be used for any significant transaction anywhere in the world, and precisely for that reason it is a bubble: it sustains its value on something fictitious that does not materialize. The response is that in El Salvador it is legal tender and can be used in all transactions. The nuance arrives immediately: a highly volatile store of value has less consistency than Terra shares. And even if Bitcoin were accepted to buy a house, one would have to pay ITP (property transfer tax) and taxes on undeclared capital, with the Tax Agency rubbing its hands.

The scenario many consider the true catalyst is yet to come: if CBDCs are implemented, cash is banned, and restrictions imposed, Bitcoin becomes much more useful. This is the hypothesis supporting long-term prices.

Warning of a bubble according to its own critics

A bubble has three characteristics, according to the most detailed analysis published in this debate. First, the majority begins to notice something doesn't add up and the word "bubble" appears in conversations. Second, greed prevents anticipating how high it can go. Third, the crash is violent and without warning. The diagnosis is that we are already in the first phase and probably in the second, with strong hands selling. The third is yet to come.

Against this, the most optimistic calculation is that if it is the biggest bubble in history and just starting, it is an unbeatable moment to enter. The pessimistic scenario assumes it is ending and everyone who invested has profited, so the logical move is to exit. The contradiction is perfect: the same premise leads to two opposite decisions.

The problem of lost wallets and energy

There is a factor almost nobody disputes: as months and years pass, many wallets are lost due to forgotten passwords or lost data. If Bitcoin is limited, a day will come when only 100 Bitcoin exist worldwide in the hands of 500 people or institutions who accumulated and never sold. The comparison with a Picasso is inevitable: limited, impossible to generate more, and in the hands of a few. Added to this is the high energy and hardware cost to keep the network alive. The conclusion of those raising this issue is that Bitcoin consumes excess printed money, nothing more, nothing less.

The confusing data point

The S&P 500 has behind it the most powerful economy in the world. Bitcoin only has speculation behind it. But 30% of the index's weight is in the top ten companies, one of them Berkshire Hathaway, and nobody really knows what these guys produce. If they are actually worth nothing, why don't they sell? The question hangs in the air. Meanwhile, Bitcoin has risen 400% in a year. Some feel cheated by that.