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This isn’t the $50,000 Bitcoin we predicted

February 17, 2021, 3:36 PM UTC

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Bitcoin has crossed the $50,000 price barrier, first tentatively on Tuesday then, definitively, Wednesday morning. It’s a crucial psychological threshold and will, in the inimitable logic of bull markets (or bubbles) spur the price even higher by the time you read this. But today’s $50,000 Bitcoin might not be quite the vindication longtime crypto advocates would like to think.

I say that even though $50,000 is a feather in the cap for myself and the Ledger team: to put it crudely, we knew this was going to happen. Robert Hackett explicitly called $50k in our 2021 Crystal Ball, but I’m personally fond of this piece from 2014, when Stanford economist Susan Athey told me that Bitcoin hitting $50,000 was plausible. (The price at the time: $623 per BTC.)

It’s very tempting to be smug about this sort of thing, and believe me, I frequently give in to that temptation. But predictions are a dime a dozen, and everyone in the business gets more wrong than they get right. (For instance, I was positive Bitcoin would top out at around $35,000 this cycle.)

And if those of us who predicted this future were honest with ourselves, we’d admit that this time, we were right for the wrong reasons.

Susan Athey’s 2014 assessment of potential future Bitcoin prices shows this clearly. Our discussion centered on various scenarios for the adoption of Bitcoin for specific payments use cases, such as retail and international remittances. The demand for those uses, Athey and other bullish thinkers at the time argued, would motivate Bitcoin buying and, through the principle of supply and demand, drive the price up.

In case you haven’t noticed, that’s not how we got here. Largely thanks to practical technical barriers, Bitcoin has turned out to be pretty bad for retail payments. Use for remittances has shown steady growth, but it’s still not nearly enough to drive the prices we’re seeing now.

Instead, the basic driver of today’s Bitcoin price is speculation on a scale I don’t think anyone could have predicted in 2014. It was Tesla’s purchase of $1.5 billion worth of Bitcoin on February 8 – not its use by a few thousand Venezuelans – that triggered the final push across the $50,000 barrier.

Superficially, Tesla and other recent big-name investors are betting on the “store of value” thesis for Bitcoin demand, which started to dominate in roughly 2017. Bitcoin transactions may be too expensive to use it to pay for a cup of coffee, the argument goes, but they make a good bank account, especially since Bitcoin is (debatably) uncorrelated with other asset prices. (It’s also vital to acknowledge that the current runup was aided by loose fiscal and monetary policy, and a shortage of solid, non-speculative investment opportunities in the overall market.)

The problem is that this idea is functionally very hard to distinguish from a totally different way of thinking about Bitcoin’s price – the theory of the Greater Fool. Because while they won’t say it very loudly, every corporate treasury and investment fund currently buying Bitcoin is doing it at least in part on the assumption that demand for Bitcoin from new investors, not new users, will continue to push up the price, or at the very least keep it steady. RBC basically stated this outright in its recommendation that Apple buy Bitcoin. Tesla’s investment is already up 20%, generating more gains in two weeks than the company makes producing cars in three months.

And when you look for the possible reason for expecting further price jumps, things get circular very quickly. At this point, the only thing that could reasonably drive Bitcoin higher in the near term is more large-scale buying, whether by institutions or individuals. What’s unclear is whether we can rightly consider these buyers ‘users’ when the explicit goal is simply to sit on the money.

To put a rosier tint on it, recent big buys reflect faith in the idea of Bitcoin itself. And if you think of Bitcoin as a currency, that broadening faith may be more important than investment-oriented ideas like supply and demand.

But nonetheless, it’s something all Bitcoin buyers should be thinking hard about: If nobody’s actually riding the merry-go-round, will it eventually stop?

David Morris

@davidzmorris

david.morris@fortune.com

DECENTRALIZED NEWS

Credits

Bitcoin price tops $50,000 for the first time ... Mastercard will allow crypto payments on its network this year ... Blockchain.com raises $120m ... Alexei Navalny raises Bitcoin to fight Putin ... Amazon moving towards digital currency in Mexico ... Dogecoin creator baffled by its boom ... Robinhood competitor Public.com valued at $1.2 Billion ... Bitcoin ETF gains approval (in Canada) ... The decline of cash is motivating central bank digitization ... Zelle becomes a haven from Venezuelan hyperinflation ... IBM bets big on the banking cloud ... MicroStrategy wants to buy another $600m+ worth of Bitcoin ... The unique tech stack behind Current ... Christie's to auction its first piece of blockchain art.

Debits

19 year old crypto investing genius was actually running a Ponzi (related: Dog bites man in Ipswitch, U.K.) ... Robinhood CEO hiding out in a hotel ... Verge cryptocurrency suffers attempted 'reorg' attack, says user funds are secure ... China's blockchain stocks are missing out on the crypto boom ... Thank deregulation for Texas' energy-pricing woes ... Tron allegedly paid celebs for secret promotion.

BUBBLE-O-METER

415.4%

Bitcoin's 12-month returns as of Wednesday February 17, 2021.

FOMO NO MO

“What would it take for them to be positive that it was an error?”

Vinny Fratta, the third and final staffer to review and approve a $900 million wire transfer made by Citigroup on behalf of Revlon, in chats presented as evidence during the ensuing trial. That trial was necessary because the massive payment was sent by mistake: it was supposed to be an $8 million interest payment. Some of the recipients returned the funds when notified of the error, but a judge ruled on Tuesday that financial finality rules mean Citi can't force the return of the $504 million still outstanding.

Yet that's barely scraping the surface of what may be the biggest fat finger in history. During the case, the hedge funds claiming the right to keep the money maintained that they believed it was an early payment in full for some of Revlon's debt. That's especially plausible because Revlon has struggled to get lender approval for a refinancing plan, which might have been made easier by closing out some of the debt. The tranche in question didn't come due until 2023, but lenders were happy to have it back early because of Revlon's wider problems.

An appeal in the case is very likely. But if that fails, Citi may or may not be able to get the payment amount back from Revlon. The cosmetics maker has previously said the money was Citi's alone, a position Revlon will likely try to stick to: credit markets value the loan at less than half its face value, so repayment in full is not necessarily in Revlon's best interest.

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MEMES AND MUMBLES

Just an unremarkable bit of entirely sincere enthusiasm that will certainly never become an exhibit in an SEC filing.

This edition of The Ledger was curated by David Z. Morris. Contact him at david.morris@fortune.com

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