The main reason why Bitcoin is still a “thing” has little to do with payments. What’s pushed it to new stratospheric highs is its embrace by mainstream finance as a supercharged alternative to stocks, bonds, real estate and gold. A growing list of “Bitcoin millionaires” has made others hungry for some of the action, putting investment advisers under pressure to offer their clients some exposure to the digital token. Big financial institutions are now offering Bitcoin exchange-traded funds, marketing them as a tool for investors to diversify their portfolios and hedge against inflation risk.
This shift has received the US government’s blessing thanks to a flurry of legislation on Capitol Hill pushed by pro-crypto President Donald Trump. Yet mainstream finance’s dalliance with virtual currencies raises important questions. For example, how can bankers responsibly recommend an asset with no intrinsic value besides its scarcity (even gold can be made into jewelery). And if Bitcoin’s price is sustained solely by the hope that more people will buy it, what happens when the last financial institution willing to embrace it has done so?
What is Bitcoin?
Bitcoin and other cryptocurrencies are digital tokens that operate on a blockchain network, which is a kind of digital ledger for recording transactions. The Bitcoin token that traders buy and sell today is the main cryptocurrency on the Bitcoin blockchain. They are known as cryptocurrencies because they rely on cryptography: They are encoded in a way that makes forgery — the biggest threat to a currency’s viability — basically impossible. For this reason, they can hold their value without the need for a guarantee from a central authority such as a government.
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The original blueprint for Bitcoin was laid out in a white paper in 2008 by a person or group of people using the pseudonym Satoshi Nakamoto. Their true identity remains unknown, despite several efforts to assign or claim credit. Online fantasy games had long used virtual currencies. The key idea behind Bitcoin was blockchain — a publicly visible, largely anonymous online ledger that records transactions using the token.
Blockchain does what the banking system does for regular currencies — tracking the movement of money from one entity to another so the same person can’t spend the same chunk of money twice. Bitcoin transactions can be made through websites or physical technology offering electronic “wallets” that upload the data to the network (although these are not always secure). New transactions are bundled together into a batch and broadcast to the network for verification by so-called Bitcoin miners.
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What is Bitcoin mining?
Anybody can be a Bitcoin miner, so long as you have a really fast computer, a lot of electricity and a desire to solve puzzles. The transaction data in each batch is encrypted by a formula that can be unlocked only through trial-and-error guessing on a massive scale. The miners put large-scale computing power to work as they compete to be the first to solve it. If a miner’s answer is verified by others, the data is added to a linked chain of blocks of data and the miner is rewarded with newly issued Bitcoin. Every block contains data linking to earlier blocks, so any attempt to spend the same Bitcoin twice would mean revising many links in the chain. And as miners compete, they verify each other’s work each step of the way.
What gives Bitcoin its value?
Bitcoin owners don’t receive the regular income or yield that comes from owning bonds or shares. Its value comes from the fact that there will be a finite supply. The Bitcoin software protocol dictates that the number of “coins” in existence will never surpass 21 million. On top of that, the rate of issuance of new Bitcoin is reduced by half roughly every four years, which reduces supply growth over time, regardless of demand. Proponents tout this as a great reason to hold Bitcoin as an alternative to traditional currencies, whose value can depreciate when central banks print more money to stimulate economic growth. Even with gold, more of the metal can end up being mined and refined if a bump in demand pushes up the price.
Some migrant workers use Bitcoin to transfer money home to their families. It’s also used for buying illicit goods on the dark web, or for criminals engaged in money laundering (although these days there are other crypto tokens that offer crooks even greater anonymity than Bitcoin). But the vast majority of today’s Bitcoin owners see it as an asset to hold, not a currency for buying things. They believe its scarcity value will keep pushing the price up for the foreseeable future.
Why is Bitcoin not very useful as money?
Settlement of trades using Bitcoin can be slow during periods when its blockchain network gets congested. Its price is notoriously volatile, so it’s hard to know exactly how many apples, shoes or Lamborghinis your Bitcoin will get you from one week to the next. Traditional currencies don’t tend to suffer the kinds of price swings seen with Bitcoin unless a nation is in a state of political or economic turmoil.
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There’s only one US dollar, but Bitcoin has to compete with other cryptocurrencies for commercial transactions, such as Ether and Dogecoin. High network fees can make Bitcoin impractical for smaller payments. El Salvador’s government adopted Bitcoin as legal tender in 2021, but only 4.9% of all transactions there are paid in Bitcoin, according to a 2023 study. So-called crypto stablecoins are potentially a more useful form of payment as they aim to keep a one-to-one value with traditional currencies, usually the US dollar. But even these are still used mostly by crypto investors as a way to switch between digital tokens and exchanges or to hold their investment winnings without converting them back to fiat currency.
What makes Bitcoin an interesting investment?
Apart from the scarcity value, Bitcoin is highly liquid and can be bought and sold across borders. You don’t have to buy an entire Bitcoin, which cost more than US$119,000 as of mid-July, as each can be subdivided and sold in parts.
Bitcoin’s value today is derived from its perceived role as a macro hedge — a way to diversify investment portfolios so they are a little less exposed to the vagaries of the global economy, unpredictable policymaking and the inflation that can erode the buying power of traditional currencies.
Why has Bitcoin rallied in 2025?
As the largest digital token, Bitcoin often acts as a bellwether for the health of the crypto market. Its price has collapsed numerous times over the years, most recently in 2022 when the failure of a stablecoin and the epic unravelling of the FTX crypto exchange led to a wave of bankruptcies. The events convinced some wavering governments that the risks inherent in cryptocurrencies far outweighed any benefits from embracing them. The European Central Bank, in a November 2022 blog post, dismissed Bitcoin’s partial recovery from the crash as an “artificially induced last gasp before the road to irrelevance.”
Yet Bitcoin rebounded, and it began to draw serious interest from some of the largest players in traditional finance. By early 2024, the token was hitting new highs, buoyed by the possibility that crypto convert Trump would be re-elected and get Congress to pass laws to regulate crypto more like conventional assets. His November election win propelled Bitcoin to further records.
What does Trump’s crypto legislation mean for Bitcoin?
- By designating certain blockchain-based assets as “digital commodities,” the legislation will reduce regulatory uncertainty for Bitcoin and other cryptocurrencies and make it easier for financial institutions considering crypto investments. That change could drive up demand for Bitcoin as a result, as well as increase customer choice on where they choose to trade.
- In recent years, enforcement actions against crypto firms offering unregistered securities have been common. The so-called Clarity Act will divide US regulatory oversight for crypto more clearly between the Commodity Futures Trading Commission and the Securities and Exchange Commission, leaving companies more confident about where they stand when offering crypto to clients.
- Other rules, like creating a legal framework for stablecoins, might also help Bitcoin. If stablecoins become more commonplace, people might find it easier to use blockchain for everyday payments and trade other cryptocurrencies. Trump has also promised to establish a strategic reserve for Bitcoin, which could lend further confidence to the asset class.
Who are Bitcoin’s new backers?
Some of the biggest players in global finance are dabbling in Bitcoin today. Wealth managers such as BlackRock and Fidelity offer exchange-traded funds tied to the cryptocurrency, making it easier for investors to gain access to Bitcoin’s price action on traditional venues like stock exchanges. Today, almost US$70 billion is traded across Bitcoin ETFs in the US.
Some have also explored custodial or trading services for Bitcoin. Firms including BNY, Goldman Sachs and Standard Chartered are among those to have entered that area in recent years.
It’s hardly the outcome envisioned by the anti-government libertarians who backed Bitcoin more than a decade ago as a way to shift the balance of power in finance from powerful institutions to the people. But Bitcoin is now seen as a necessity for a growing number of investors who want to spread risk (and who don’t want to miss out on the next crypto rally).
So is Bitcoin the future again?
The hope among today’s Bitcoin proponents is that its growing base of institutional owners will reduce the token’s gut-churning volatility by stepping in as longer-term buyers the next time less experienced, more trigger-happy retail investors panic and hit the sell button.
Having a larger and more diverse group of investors would also boost liquidity and reduce the impact of large individual trades on price movements. Institutions also bring risk management tools and hedging strategies that help smooth out price fluctuations.
But it’s unusual for giant banks to be marketing an asset while voicing serious concerns at the same time. JPMorgan Chief Executive Officer Jamie Dimon has dismissed Bitcoin as a “hyped-up fraud,” and said he would shut down the crypto industry if he could. This year, his bank started accepting Bitcoin ETFs as collateral for loans. Dimon said at the firm’s investor day in May that he’s still “not a fan” of Bitcoin.
As Wall Street tightens its embrace of Bitcoin, that tension between excitement and unease is hard to ignore. What was once dismissed as a speculative asset is now being embedded into retirement portfolios, credit lines, and the collateral frameworks of major banks. If there’s another crash — the kind of violent correction Bitcoin weathered in 2022 — the fallout will no longer be limited to crypto-native firms and adventurous retail investors. It could spill over to institutions such as pension funds that were previously insulated from the digital token’s volatility.
Financial players who decide to go all-in on Bitcoin and make it a significant part of their holdings may find it an expensive endeavor: The Basel Committee on Banking Supervision has said cryptocurrencies such as Bitcoin should face a risk weighting of up to 1,250% when held by banks. That could make Bitcoin very costly for them to own directly as it suggests they would need to hold a large amount of capital to protect against the risk of heavy losses.
