A week into the new year, the market value of all the world’s cryptocurrencies surpassed $1 trillion. The record came at the end of a supercharged six-month bull run. At the end of June, the value of all digital currencies added up only to around $260 billion.
This week, the market slid again, pulled down in part by a bitcoin plunge that wiped out $185 billion in value. But for a while there, crypto was a trillionaire.
Close observers of the digital currency market have, in the past, pointed out the unreliability of some crypto data. But it is clear that the pandemic has boosted crypto extravagantly. Analysts offer various explanations for why this is the case: the increasing digitization of other spheres of our lives; the need to hedge against inflation as central banks pump out money; a safe-harbor asset during uncertain times; fresh speculative interest from institutional investors.
It isn’t always easy to treat crypto like other currencies. “Money is defined as a medium of exchange, widely used, which crypto isn’t yet,” said David Beckworth, a former economist at the US Department of Treasury. Often, instead of being used to purchase things, crypto behaves more like a speculative asset. The face value of a single bitcoin changes wildly in short periods of time, depending on how much people want to buy it, just as with stocks in an exchange. The face value of a $100 bill, though, remains the