Bitcoin has proven to be one of the best-performing assets in modern history.
The value of the cryptocurrency has increased some 1,000 times over the past decade, far outpacing US stocks and real estate.
Buoyed by United States President-elect Donald Trump’s crypto-friendly stance, Bitcoin’s record rally hit a new high of $107,000 on Monday after the Republican reiterated his intention to create a Bitcoin strategic reserve.
Bitcoin, the first decentralised digital currency, was invented by the pseudonymous figure Satoshi Nakamoto in the wake of the 2007-2008 global financial crisis.
Nakamoto introduced the blockchain system – a digital ledger that stores transactions in a network of computers – to enable anyone to make financial transactions without the involvement of banks, financial firms or governments.
Once widely derided as a speculative asset with no intrinsic value, Bitcoin is being taken increasingly seriously by governments, financial institutions and investors alike.
Boaz Sobrado, a London-based fintech analyst, said Bitcoin has transformed from being a niche asset favoured by political dissidents and criminals carrying out Illicit transactions “to something that central banks have to keep in mind and consider”.
“The IMF has put very firm anti-crypto political guidelines into place when negotiating with countries that might require its own assistance. It’s gone from being an academic question to a practical, real one and one that central banks are taking very seriously now,” Sobrado told Al Jazeera.
In January, the US Securities and Exchange Commission (SEC) approved Bitcoin ETFs (exchange-traded funds), allowing investors to have exposure to the asset on the stock exchange for the first time.
In an October report, the US Department of the Treasury referred to Bitcoin as “digital gold”, noting its use as a store of value.
A number of countries have made big bets on the cryptocurrency.
El Salvador has accumulated some $600m worth of Bitcoin reserves and is one of just a handful of countries, along with the Central African Republic, that accepts the asset as legal tender.
Other countries, including the US and the United Kingdom, have acquired large holdings of Bitcoin through the seizure of assets implicated in criminal activity.
The US has seized at least 215,000 Bitcoins, valued at almost $21bn at current prices, since 2020, according to an analysis by crypto firm 21.co.
With Trump returning to the White House, Bitcoin supporters are hopeful that cryptocurrencies will gain unprecedented legitimacy after years of government-led crackdowns on the sector.
Despite once labelling Bitcoin “a scam”, Trump has emerged as arguably the world’s most powerful advocate for the asset.
After pledging to make the US “crypto capital of the planet”, he has picked several high-profile crypto enthusiasts to join his incoming administration, including former PayPal Chief Operating Officer David Sacks as crypto tsar and Paul Atkins as SEC chair.
Trump’s pro-crypto stance has found allies in the US Congress, such as Senator Cynthia Lummis, a Republican from Wyoming, who earlier this year introduced the BITCOIN Act of 2024, which would include Bitcoin among reserve assets such as gold and oil as a long-term store of value.
Under Lummis’s plans, the government would buy roughly 200,000 Bitcoins every year for five years, and then hold the assets for 20 years as a hedge against inflation.
“If we did that with five percent of all the Bitcoin that will ever exist – which is roughly a million Bitcoin – we could cut our debt in half in 20 years,” Lummis said in a television interview with Fox Business.
On Wall Street, derision and mockery have also given way to more positive appraisals.
BlackRock CEO Larry Fink, who once described Bitcoin as an “index of money laundering”, in January said the commodity was “no different than what gold represented for thousands of years” and an “asset class that protects you”.
‘Currency of resistance’
The key attribute of Bitcoin that makes it revolutionary is that it separates money from the state, according to Max Keiser, senior Bitcoin adviser to El Salvador President Nayib Bukele.
“This is the first time in history that this has ever happened – money exists that has no central authority controlling it. This is what makes it unique, very powerful,” Keiser told Al Jazeera.
“There’s now this growing feeling that the 21st century will be the century of Bitcoin.”
Keiser spotted Bitcoin’s potential early on and advised people to buy it when its value was only $1 in 2011. That year, he and his wife, television presenter Stacy Herbert, called Bitcoin “the currency of resistance”, and predicted it would top $100,000.
One of the reasons Bitcoin has gained strength in value is the poor performance of economies such as Argentina, where inflation last year skyrocketed more than 200 percent, according to Gerald Celente, founder and director of the New York-based Trends Research Institute.
“People were seeing their currencies being devalued… People were saying: ‘I’m losing all my money,