Bitcoin is the new Grail or funny money? The jury is still out

• Bitcoin price rises against a depressed US dollar, however, some experts are not convinced.
• Cryptocurrency supporters claim that BTC is set to replace both USD and Gold.

Bitcoin settled above $23,000 after testing a new all-time high at $23,770. The pioneer digital currency gained over 225% since the beginning of the year. According to a recent survey conducted by the Bank of America, it became the third most popular trader among institutional investors.

While the bullish run has slowed down, the momentum remains strong, promising more gains into the end of the year. 

The strong rally polarized an opinion on what is next for Bitcoin and its role in the global financial system and the economy. Bitcoiners argue that the cryptocurrency will dethrone the US Dollar as a global reserve currency and muscle out gold as a primary safe-haven asset and portfolio diversifier. They cite potential inflationary pressure and Bitcoin's sacristy as the critical factors that will push it higher.

Their opponents claim that Bitcoin is a mother of all speculative bubbles that will inevitably burst and leave all the supporters devastated, seeking protection and support from the governments and traditional financial institutions. 

This article summarizes the existing points of view and explores the supporting arguments.

Bitcoin is the king, the dollar must die

Cryptocurrency market analysts point to an inverse correlation between USD and Bitcoin. The trend has been developing at least since the end of March, when Bitcoin bottomed out and began a slow recovery, while USD, on the contrary, hit the top and reversed to the downside. 

Since that time, USDX, an index of USD value based on a basket of foreign currencies, decreased from 103.8 to 89.9 by the time of writing, losing nearly 14% of its value. Considering the $30 trillion market capitalization of USD, 14% is an enormous loss worth about $4.2 trillion. A value seven times bigger than the whole cryptocurrency market capitalization has been wiped out in nine months.

USDX chart

Meanwhile, Bitcoin bottomed at $3,850 in March to test $23,700 in December, which is a 500% increase. According to a popular crypto Twitter technical Analyst and Bitcoin enthusiast, aka Parabolic Thies, the USD decline might have fuelled Bitcoin's rally.

This correlation supports the idea that Bitcoin is mostly used as an inflation hedge and a safe-haven in the depreciating dollar environment.  A helicopter money policy adopted by the FED, coupled with the zero interest rates policy, forced individuals and businesses to seek alternative ways to preserve their capital.

Grayscale's Bitcoin Investment Trust (GBTC) is currently trading with over 30% premium to the Bitcoin spot, emphasizing an excessive demand from institutional investors and wealthy individuals who want exposure to the lucrative cryptocurrency market.  Notably, as the trust's shares are listed on a regulated exchange, they can be bought from an individual retirement account (IRA), which is a tax-advantaged investing tool.

Bitcoin is funny money

On the other side of the spectrum, Bitcoin critics claim that the cryptocurrency is a big mystification that will inevitably go bust. A famous gold bug Peter Schiff and a prominent economist Nouriel Roubini, also known as Mr. Doom, are among the usual Bitcoin bashers. 

They point out that Bitcoin is not backed by real-life assets, while their value is underpinned exclusively on public confidence. If it is somehow eroded, Bitcoin's value will go down to zero in a flash of an eye.

A billionaire Mark Cuban known for his cautious approach to cryptocurrency is not convinced by Bitcoin's 500% rally. In the recent interview with Forbes, eight days before BTC hit a new record high, Cuban said that Bitcoin was more like a religion than a solution to any problem.

No matter how much [bitcoin] fans want to pretend that it's a hedge against doomsday scenarios, it is not. Countries will take steps to protect their currencies and their ability to tax, so the more people believe this is anything more than a store of value, the more risk of government intervention they face, he said.

Cuban admits that Bitcoin can be regarded as a store of value comparable to gold as long as people believe in it and accept it as a digital version of gold.

[Bitcoin] is what it is, something that enough people have agreed upon is an investable asset, he added. 

These are the polarized views. However, there are many mixed and sometimes more reasonable opinions about what's going on in between. After all, truth is always somewhere in between.