The Recent Bitcoin Craze

Bitcoin has spent much of its history moving between two identities. It began as a peer-to-peer payment system designed to let people transfer value without relying on a bank or another central intermediary, but the public attention around it has often been driven less by payments than by price. When Bitcoin rises quickly, the technology, monetary philosophy and investment case tend to merge into a single story. When the price falls, those ideas separate again and investors are forced to decide what they actually believed they were buying.

That distinction is more useful than trying to decide whether every sharp rise is a bubble or every decline proves that Bitcoin has failed. The recurring Bitcoin craze is best understood as the interaction of a scarce digital asset, changing access to the market, strong narratives about future adoption and a trading culture that can amplify both enthusiasm and fear. Bitcoin has survived several speculative cycles, but survival does not make any particular price reasonable, and a durable network does not guarantee a durable return for someone who buys at the wrong price.

The old debate over whether Bitcoin is money, an investment or a commodity has also become less binary. It can be transferred as a digital asset, held for long periods, traded around the clock and used as collateral or as the underlying exposure for regulated financial products. Those uses overlap, yet they create different reasons to own it and different risks. Anyone trying to make sense of a Bitcoin boom therefore needs to separate the usefulness of the network from the market price of the asset.

Why Bitcoin keeps producing craze cycles

Bitcoin attracts speculative attention partly because it offers a story that is easy to understand at a high level. The supply is constrained by protocol rules, new issuance declines over time, and no central bank can decide to create additional Bitcoin in response to a recession, a banking crisis or a change in monetary policy. For people who distrust discretionary monetary policy, that scarcity is central to the appeal. For traders, scarcity also provides a simple narrative for why increasing demand might translate into a higher price.

Scarcity, however, is only one side of a market. An asset can have a fixed or slowly growing supply and still fall sharply if buyers become less willing to hold it at the prevailing price. Bitcoin’s demand is influenced by expected future adoption, risk appetite, regulation, market liquidity, access through exchanges and brokerage accounts, institutional participation, technological developments and the willingness of existing holders to sell. The supply schedule may be comparatively predictable, but the price is set at the margin by buyers and sellers whose expectations can change quickly.

Price itself can then become part of the demand story. A sustained rise attracts press coverage, social-media attention and investors who were not interested at lower prices. Some buyers enter because they have developed a long-term thesis, while others enter because they do not want to miss a move that is already happening. Their purchases can reinforce the rise, which attracts another group of buyers. The same feedback can operate in reverse when falling prices create forced selling, loss aversion or a sudden reassessment of how much risk people were actually willing to take.

This helps explain why Bitcoin booms often feel different from ordinary investment rallies. A company can eventually be compared with earnings, cash flow, assets or expected dividends, even if reasonable investors disagree about the valuation. Bitcoin does not produce corporate earnings or contractual cash flows. Its market value depends heavily on what current and prospective holders believe the network, scarcity and future demand are worth, so changes in sentiment can have an unusually large effect on price.

From a payment experiment to an investable market

The early case for Bitcoin centered on direct digital transfers and the possibility of money that could operate without a central issuer. It also became the best-known member of a much broader cryptocurrency market. Earlier terminology sometimes described these assets as cybercurrencies, but the modern distinction is more useful: Bitcoin is one crypto asset with its own monetary rules, security model, network effects and market history, not a generic representative of every token that happens to use a blockchain.

The market surrounding Bitcoin has changed dramatically since its first major public boom. Futures created another way to gain or hedge price exposure, large custodians and exchanges built institutional infrastructure, and brokerage access became progressively easier. In January 2024, the U.S. Securities and Exchange Commission approved the listing and trading of a number of spot Bitcoin exchange-traded product shares. The SEC was explicit that approving the products did not amount to approving or endorsing Bitcoin itself.^[1]

That development matters because access can influence demand even when it does not change the Bitcoin protocol. An investor who does not want to open a crypto exchange account, manage a wallet or hold private keys can obtain Bitcoin price exposure through a conventional brokerage account using an ETP. The wrapper can make portfolio administration and custody simpler for some investors, but it does not turn Bitcoin into a conventional stock or bond. The value of the product still depends mainly on the value of the Bitcoin it is designed to track, less fees and other product-specific effects.

Broader access also changes the character of a craze. The 2017 market was strongly associated with crypto exchanges, early adopters and retail speculation. Later cycles have included a larger institutional and regulated-product component. That does not eliminate speculation. It means speculative demand can arrive through more channels, and a rise in participation can coexist with continuing disagreement over what Bitcoin should ultimately be worth.

Why price can run ahead of everyday utility

The strongest version of the Bitcoin investment case does not require every holder to buy coffee with it. Many owners treat Bitcoin more like gold, an asset held because of scarcity and perceived monetary properties rather than because it is routinely spent. The analogy is incomplete, since gold has physical and industrial uses while Bitcoin is a digital network asset, but it helps explain how something can have market value without functioning as an everyday unit of account.

Bitcoin is also frequently discussed as a commodity because U.S. derivatives law treats Bitcoin as a commodity and because its price is shaped by market supply and demand rather than by a corporate issuer. Still, ordinary commodity valuation often has an observable connection to physical consumption, inventories, production costs and commercial demand. Prices of commodities such as oil, wheat or copper respond to end-user demand in a way that is much easier to observe directly. Bitcoin’s demand is more dependent on its monetary appeal, network use and investor expectations.

That makes the concept of intrinsic value difficult to apply in the same way that it would be applied to a business. Saying that Bitcoin has no earnings is not the same as saying it has no value, just as an asset does not need to produce a dividend to be valuable. It does mean that investors cannot fall back on a conventional discounted cash-flow model when enthusiasm becomes extreme. Much of Bitcoin’s valuation debate is therefore a debate about future demand: how many people, institutions or applications will want to hold or use a finite amount of the asset, and how much capital will they commit to doing so?

A rising price can be consistent with a rational change in those expectations, but it can also contain a large speculative component. The difficult part is that the two can occur at the same time. New market access, better infrastructure or wider recognition may improve the long-run case while short-term buyers simultaneously push the price beyond what future adoption ultimately supports. A strong technology thesis does not automatically provide a good entry price.

Bitcoin as currency remains a separate question

The original MarketReview article was right to focus on the tension between speculation and Bitcoin’s original purpose as a currency, but the mechanics need more precision. Bitcoin can be used to transfer value, and merchants or payment processors can accept it, yet a payment asset works differently when its exchange value against the local currency can move substantially between the time a price is quoted and the time the recipient chooses to convert or hold it. A merchant that immediately converts Bitcoin to dollars avoids much of the price exposure, but in economic terms the merchant is then accepting a payment rail more than choosing Bitcoin as its operating currency.

Volatility also affects the holder’s incentives. Someone who expects Bitcoin to appreciate may prefer to save it and spend dollars instead, particularly when wages, taxes, rent and most everyday prices are denominated in dollars. Someone who expects a decline has the opposite incentive and may try to spend or sell it quickly. A widely used currency benefits from reasonably stable purchasing power over the horizons in which people quote prices and settle obligations. Bitcoin does not need to be perfectly stable to be useful, but large exchange-rate swings make that monetary role harder.

The old claim that Bitcoin is completely anonymous is also inaccurate. Bitcoin transactions are recorded on a public blockchain and addresses are pseudonymous rather than inherently tied to a person’s legal identity. An address can sometimes be connected to an individual through an exchange account, transaction history, investigative analysis or other information. Privacy can still differ from a conventional bank transfer, but public-chain transparency is one reason Bitcoin should not be described as an untraceable payment system.

U.S. tax treatment creates another practical difference between spending Bitcoin and spending dollars. The IRS requires taxpayers to report income, gains and losses from digital asset transactions, and dispositions can include exchanging a digital asset for another asset, for currency, or for goods and services. That means using appreciated Bitcoin to buy something can create recordkeeping and tax consequences that do not arise when a consumer simply spends U.S. dollars.^[2]

Speculation is not the same as an investment thesis

Bitcoin’s speculative value is not a flaw that can be separated neatly from the market. Speculation supplies liquidity, expresses competing views and helps establish a price. The problem begins when an investor treats recent price appreciation as if it were evidence that the underlying thesis has become safer. A higher price may reflect improving fundamentals, but it can also mean that more optimism is already embedded in the asset.

A useful distinction is the reason for the position. A long-term holder might believe that Bitcoin will remain scarce, continue to attract capital and become more important as a digital store of value. A trader may have no view about Bitcoin ten years from now and simply expect momentum, a technical breakout or a change in market positioning to move the price over the next week. Those are different decisions. Confusing them makes risk management difficult because the investor can turn a failed short-term trade into an indefinite long-term holding simply to avoid realizing a loss.

The old article also understated the difficulty of controlling a significant risk with a quick exit. Bitcoin trades continuously, but continuous trading does not guarantee that an order will execute at the price an investor wants. Fast markets can produce slippage, thin liquidity at particular venues, gaps between quoted levels and sharp moves while a position is being closed. Leverage adds another layer because a move that a fully funded holder could survive may force a leveraged trader to liquidate.

The Commodity Futures Trading Commission warns that virtual-currency cash markets can involve volatile price swings, manipulation, cyber risks and platforms that may lack protections associated with regulated markets. It also notes that leverage in futures can amplify losses and can lead to losses beyond the initial amount funded in some circumstances.^[3] The practical lesson is not that every Bitcoin venue is unsafe. It is that market risk, platform risk, custody risk and leverage risk are separate exposures, and an investor should know which ones are present before deciding how much capital to commit.

What Bitcoin ETPs changed, and what they did not

Spot Bitcoin ETPs reduced some of the operational friction that once came with gaining exposure. Investors using a conventional brokerage account do not need to manage private keys themselves, and the product’s securities-market framework brings disclosure, exchange listing and familiar account administration. For retirement or taxable brokerage portfolios, that can make the exposure easier to hold alongside stocks, bonds and funds.

The trade-off is that an ETP holder owns shares in a product rather than Bitcoin that can be moved on the Bitcoin network. The investor depends on the product structure, sponsor, custody arrangements and tracking process, and pays the product’s expenses. Direct ownership creates different responsibilities because the holder or chosen custodian must protect access to the underlying Bitcoin. Neither structure is automatically superior for every investor. The choice depends on whether the goal is portfolio price exposure or direct possession of an asset that can be transferred on-chain.

ETPs also do not remove the underlying volatility. A regulated wrapper can reduce certain operational or access problems without changing the fact that Bitcoin’s market price can fall rapidly. This distinction matters during a craze because familiarity can be mistaken for safety. Buying Bitcoin exposure through the same brokerage screen used for an index fund does not give Bitcoin the same economic characteristics as a diversified equity index.

Futures add another route and can be used for speculation or hedging with Bitcoin exposure, but derivatives introduce contract mechanics, margin and basis risk that a simple unleveraged spot position does not have. A hedge can reduce a particular risk only when it is sized and structured for that exposure. Using leverage merely because futures make leverage available is a different decision and can magnify the very volatility the investor was trying to manage.

Why the tulip comparison only goes so far

Tulip mania remains a convenient metaphor for a market in which rising prices attract buyers who are increasingly interested in resale rather than the underlying item. Bitcoin has experienced periods that fit part of that description. Momentum has drawn in participants, expectations have become extreme, and large declines have followed some of the strongest advances. Those similarities justify asking whether speculation has moved faster than the economic case.

The analogy becomes weak when it is treated as a prediction that Bitcoin must end in the same way. Bitcoin is a global digital network that has operated for years, has deep trading markets, supports transfers independent of banking hours and has developed an ecosystem of exchanges, custodians, derivatives and listed investment products. Its price can still be excessive at a particular moment, but the existence of durable infrastructure means a speculative collapse in price is not the same thing as the disappearance of the network.

The more important lesson from bubble comparisons is not to search for a historical event that tells us Bitcoin’s final value. It is to recognize the market mechanism. When people buy principally because they expect someone else to pay more soon, price can become detached from slower-moving evidence about adoption or utility. That condition can reverse abruptly even when the long-term asset survives, leaving both enthusiastic buyers and determined skeptics wrong about different parts of the story.

How to approach the next Bitcoin craze

The starting point is to decide what would make the Bitcoin thesis right or wrong before price movement changes the story. An investor buying because of long-term scarcity and adoption should identify what evidence would undermine that belief, such as a deterioration in network security, persistent loss of demand, a material change in market access or the emergence of a better substitute that captures the same monetary role. A trader buying because of momentum needs a different plan, because a break in the trend can invalidate the trade even if the long-term case for Bitcoin remains intact.

Position size matters more than dramatic forecasts. Bitcoin’s history shows that large drawdowns are possible, so a portfolio should not require a specific short-term price path in order to remain financially workable. Money needed for near-term expenses, emergency reserves or debt payments is poorly matched with an asset whose exchange value can move sharply. The more concentrated the position, the more the investor’s financial outcome depends on one market and one thesis.

Leverage deserves separate treatment because it changes the loss mechanism. An unleveraged holder can choose to continue holding through a decline, although the economic loss is still real. A leveraged trader may not have that choice if margin requirements force the position to be reduced or closed. During a fast selloff, the need to provide additional collateral can arrive precisely when liquidity and risk tolerance are already under pressure.

Custody should also match the form of ownership. Direct Bitcoin puts more control in the holder’s hands but can make mistakes with keys, wallet security or transfers irreversible. An exchange or custodian reduces some personal operational burdens while creating dependence on that intermediary. An ETP shifts the problem again by placing custody inside a regulated investment-product structure, but the investor then owns the product rather than spendable Bitcoin. These are not merely technical distinctions because each structure changes what can go wrong.

Tax records are part of the investment process rather than an afterthought. Frequent trading, exchanging one digital asset for another or spending appreciated Bitcoin can create a larger recordkeeping burden than simply buying and holding. A strategy that looks profitable before tax can produce a different result once realized gains, losses, fees and reporting obligations are included, particularly for investors who trade across several platforms or wallets.

Finally, the existence of strong opinions on both sides should not substitute for valuation discipline. Bitcoin does not have to replace the dollar to retain substantial market value, and it does not have to become worthless merely because a speculative cycle ends badly. The sensible question during a craze is narrower: what assumptions are embedded in the price being paid, how much of the buyer’s return depends on continued enthusiasm, and can the position survive a severe move in the opposite direction without damaging the rest of the financial plan?

Bitcoin’s recurring booms are likely to keep producing arguments about bubbles, money, technology and freedom because the asset sits at the intersection of all four. The strongest way to evaluate it is to keep those questions separate. A useful payment network can be overpriced, a volatile asset can still have long-term demand, and a regulated investment wrapper can make access easier without making the underlying exposure conservative. Investors who preserve those distinctions are less likely to let the excitement of the next craze decide the size, purpose or risk of the position for them.