Bitcoin's latest surge lacks ground support. The digital currency's doubling in just six weeks has revived investor interest after last year's shakeout. Yet adoption of its underlying blockchain technology remains sluggish despite growing investment by startups and the likes of Amazon and Microsoft . That virtually assures a bumpy path ahead.
After surging 20-fold in 2017 to a peak of almost $20,000, bitcoin plunged nearly 85% over the following 12 months. The failure of countless competing cryptocurrencies through fraud, incompetence or immature technology, and a crackdown by regulators helped burst the speculative bubble. Yet Wall Street isn't giving up just yet.
It's still early days. CoinMarketCap pegs the value of the more than 2,000 digital currencies at less than $250 billion, barely 1% of the S&P 500 Index, and the market for most of them is notoriously illiquid. But bitcoin's $2,000 surge in the past week while trade-war fears were tanking stocks buttressed its perceived value as an uncorrelated asset.
The fundamental driver of the move, if any, rests in the belief that distributed-ledger technology is heading for its Netscape moment, disrupting finance and business as radically as when the arrival of the web browser ushered in the internet age. More than four-fifths of respondents in a recent Deloitte survey said they believed blockchain would eventually be widely adopted.
Exactly when that might happen remains a big question. Venture-capital firms that were big investors in initial coin offerings before that market effectively closed last year are now focusing on taking equity stakes in startups and spreading their bets.
Remington Ong, a partner at Shanghai-based Fenbushi Capital, told one fund forum it would take years to demonstrate that bitcoin and other digital assets have any fundamental value. "We're still in the very early days of what crypto technology can do," he said.
Pantera Capital, which recently raised $160 million for its third venture fund, takes a similar long-term view. Bitcoin has suffered several bear markets in its young history, but 12 to 18 months later "it's always up two and a half times," said partner Paul Brodsky. "So you're not supposed to overthink this."
At this week's Consensus conference, hundreds of blockchain startups and developers presented plans for everything from fractionalized ownership of stocks, real estate and commodities to new gaming models and streamlined supply chains. Yet most are years from fruition.
Tech giants, meanwhile, are rolling out applications, like the data base Amazon Web Services is building for Australia's health-care advisory service. Most, though, use centralized blockchains rather than public, cryptocurrency-linked ones. Similarly, JPMorgan's digital coin will be a tool for using its payments service, not an asset in its own right. And some financial institutions remain skeptical that blockchain can replace their legacy systems any time soon. "What's the real value we're getting," said Jennifer Peve, head of fintech strategy at clearing giant DTCC. "It's a question we're still asking."
Developers have more than enough to keep themselves plenty busy over the next few years. But blockchain's killer app, if it arrives at all, may not make a killing for their investors.