Bitcoin’s bounce holds a lesson for central banks

livemint.com:

The world’s original cryptocurrency, Bitcoin, scaled a fresh peak on Monday. It touched $72,234 per token, whipping past its pandemic summit of almost $69,000 back in November 2021. It lost about three-fourths of its value in a prolonged slump after that, with cryptosceptics gloating over the deflation of an ‘asset’ with neither any intrinsic value nor yield.

Today, with the tables turned, what was dismissed as a covid blip is back in the spotlight. The latest upshoot was mostly on the back of US flows into recently launched exchange-traded crypto funds, but it’s the underlying scarcity of Bitcoin that explains its basic appeal as an investor pick. This April, the supply of new tokens will halve, as it’s designed to do every four years.

While new Bitcoin can be ‘mined’ online by expending energy and exercising minds to validate open-ledger transfers on its ‘blockchain,’ Satoshi Nakamoto—as Bitcoin’s mystery originator likes to be called—had capped the total at 21 million coins in all. Since the periodic halving of new tokens will ensure all Bitcoin ever created will converge to that figure, it is destined to stay scarce. Hence, so long as demand exists, it can act like a form of digital gold: No matter how hard alchemists try, they can’t add to its overall stock.

Which, of course, was the big idea. That’s also what makes Bitcoin such an enigmatic artefact of the digital age. It began life as a medium of exchange, after all, a currency run by software beyond the reach of human control, aiming to challenge the fiat money issued by central banks.