Is Bitcoin Too Big to Fail?

JUST BEFORE THE LAST BITCOIN BUBBLE popped, around the time socialite Paris Hilton issued her own “digital token” and idealists and amateurs across the globe were still tipsy on the idea of circumventing Wall Street, central banks and the usual billionaires with new digital currencies, Mike Novogratz was finishing up a talk at a cryptocurrency conference in New York City.

Novogratz, a former Goldman Sachs executive turned bitcoin advocate, had given many such speeches before, usually to an audience of staid financial types. This time, however, he stepped off the stage to a mob of millennials and a rock star’s greeting. “Literally pictures, pictures, pictures,” he says. “Everybody wanted a selfie. Some girl came up and started quaking, ‘Can you sign this?’ It was really weird.”

“So I started selling.”

It was a smart move. By 2019, bitcoin, a famously volatile digital currency, had dropped to less than $4000. In recent months, however, it has once again started a steep upward trajectory. It rose from $11,000 in September to $24,000 in December, passed $40,000 in January and hit $61,000 in March—more than three times its 2017 peak and 19 times its most recent low in 2019—raising fears of yet another bubble.

But this time around, things are different in at least one respect: It’s not just the hoi polloi who are powering the cryptocurrency’s rise. The financial establishment has also added its considerable fuel to the bitcoin rocketship.

With interest rates hovering around zero, governments taking on trillions in COVID-stimulus debt, and stock valuations reaching levels that some investors consider absurd, corporate chieftains and institutional investors have grown increasingly desperate for a place to stash their money. In February, big investors—including Tesla-chief Elon Musk; Blackrock, the world’s largest money manager; and banking powerhouses Goldman Sachs and Morgan Stanley—revealed plans to trade bitcoin and invest it on behalf of some customers. Both Visa and Mastercard said they plan to add cryptocurrencies to their payments networks following the December announcement by PayPal CEO Dan Schulman to allow U.S. users to buy, sell and hold crypto. Billionaire Mark Cuban has also endorsed bitcoin.

What the arrival of the smart-money set means for the long-term viability of bitcoin and other cryptocurrencies—and for the future of gold and traditional forms of government-issued paper money—remains an issue of intense speculation and debate. Policymakers and economists such as Berkshire Hathaway’s Charlie Munger and incoming Treasury Secretary Janet Yellen have warned about destabilizing effects of a second bitcoin bust, which could wind up vaporizing the wealth