It’s Called “Virtual” Currency—So Why Believe Bitcoin Will Keep Rising?

Last Updated 14,Dec 2024

Although cryptocurrencies indeed have technological potential, the core debate has always been that they are disconnected from real economic output and lack intrinsic value. Can they really be considered investable?

Columnist “Orbital Martingale” analyzed from a monetary perspective: the difference between cryptocurrencies and fiat money is not whether paper notes exist. The U.S. dollar can buy goods, time, and labor because it is backed by the productive power of over 300 million people, accounts for 28.78% of global GDP, has the largest gold reserves, and is the dominant reserve currency worldwide.

Instead of debating whether crypto is “money,” we might as well view it as a commodity—like exchanging cash for arcade tokens. Tokens have value for playing games inside the arcade, but once you leave, you need to convert them back to cash. Buying and holding cryptocurrencies is based on the belief that they can be exchanged for more fiat currency later—currencies whose trust is backed by real economies.

Without that premise, what happens when a virtual coin loses its peg to the dollar? We already saw it in 2022, when the world’s second-largest stablecoin UST collapsed.

Stablecoins are digital assets designed to maintain stable value by being pegged to assets such as fiat (e.g., USDT and USDC linked to USD), commodities (e.g., PAXG linked to gold), or even other cryptocurrencies (e.g., DAI). UST, however, relied on algorithms and market mechanisms. In 2022, Wall Street hedge fund Citadel reportedly attacked UST by selling it off and shorting it, causing its value to crash from $80 to $0.006 in just seven days, wiping out nearly all of its associated token LUNA as well. It was a replay of the 1997 Asian Financial Crisis—showing that when the conditions and actors align, almost anything can happen in markets.

Stablecoins: Lessons from USDC and USDT

Crypto, while making up less than 1% of U.S. assets, accounted for over 18% of SEC complaints. U.S. regulators therefore take a cautious stance—which is not necessarily bad for investors.

When Silicon Valley Bank (SVB) collapsed in 2023, stablecoin USDC had $3.3 billion in reserves at SVB and temporarily lost its peg to the dollar. However, the FDIC stepped in to liquidate and manage repayments, restoring confidence. Within weeks—by March 24—USDC had fully recovered, and some investors even saw it as a buying opportunity.

In contrast, USDT is larger and more widely used but has long faced criticism for its lack of transparency in USD reserves and allegations of involvement in illicit finance. It has drawn scrutiny and fines from regulators. Until clearer oversight (e.g., by the New York Department of Financial Services) is established, USDT carries systemic risk concerns.

Why Is Bitcoin Rising? Booming Economy, Hot Markets, Abundant Liquidity

There are only two sources of investment return: capital gains (price appreciation) or income (interest, dividends). Companies have assets and revenues to support returns. Bitcoin, by contrast, is just a commodity with no dividend—its value appreciation depends entirely on capital gains.

Orbital Martingale notes that based on 2025 S&P 500 EPS estimates, U.S. corporate earnings are still trending upward, with no sign of decline. Despite Fed tightening reducing its balance sheet from $8 trillion to $7 trillion, liquidity remains high. That excess capital continues flowing into financial markets, pushing up asset prices—including Bitcoin, which benefits as a commodity.

But in boom times, all assets can rise. The true test will be how much Bitcoin falls during downturns. Investors must ask: can they withstand such volatility? Or should they choose assets backed by tangible value, which are more resilient in downturns?

ETFs Linked to Crypto: Still Risky

Even if investors don’t buy Bitcoin directly but through crypto-related ETFs, these funds lack the stable dividends of equity or bond ETFs. Their performance depends entirely on capital gains, testing fund managers’ skill in sustaining net asset value growth.

Still, compared to holding Bitcoin outright, a Bitcoin ETF is denominated in USD. That gives it an extra layer of security, since the U.S. dollar itself is relatively stable—unlike stablecoins, which rely on issuers maintaining dollar reserves to preserve their peg.