IFSA Network

Our Chapter’s Publications

Cryptocurrency and Blockchain Technology: A Financial Revolution or a Speculative Bubble?

IFSA LSR
Authors: Aditi Mahajan, Kashvi Chugh
Published on: April 18, 2025

Introduction 

Since its  creation and release in 2009 by an anonymous computer programmer or group of programmers known as Satoshi Nakamoto, Bitcoin, the first crypto currency, has remained  the most valuable and widely recognized digital asset. In 1983 American cryptographer David Chaum, the “godfather of cryptocurrency,” who proposed eCash, the idea of anonymous electronic money, launched Digicash in 1989, but failed to achieve widespread adoption. 

Fast forward to today,  many wealthy and intelligent investors like Elon Musk (CEO of Tesla and SpaceX), Changpeng Zhao (founder of Binance: one of the largest crypto exchanges in the world),  Winklevoss Twins (early bitcoin investors and founders of the Gemini exchange) have recognized the potential of cryptocurrency. These investors see cryptocurrency as a revolutionary asset class with massive potential. 

But what exactly is cryptocurrency, and why is it so valuable? Is it truly the revolution in finance or are we witnessing the making of a massive financial bubble? In this article we will be exploring its origin, meaning and key arguments for and against its legitimacy as a financial revolution. 

What is Cryptocurrency? 

Cryptocurrency in essence refers to a digital payment system that operates independently of our traditional banking system. It enables peer-to-peer transactions through certain cryptographic techniques which ensure that transactions are secure and verified. Unlike physical currencies, it exists only in digital form and is recorded in a public ledger known as the blockchain.

 In contrast to traditional asset markets, cryptocurrency markets :

  1. Are fully digital 
  2. Transcend national borders
  3. Operate 24/7 around the world 
  4. Aim to be decentralized

A newspaper presented a conceptual framework to analyze whether crypto-assets could eventually serve as sound reserve assets for central banks and reserve managers.

Reserve assets are foreign financial assets held by central banks for insurance purposes, to maintain economic and financial stability in times of adverse external shocks and to conduct foreign exchange policy. Traditionally, central banks follow a conservative investment approach, focusing on high-quality fixed-income assets denominated in US dollars and euros. Since reserve assets are primarily needed during crises, liquidity and safety are the key criterias, while return on investment is of lesser importance.

Blockchain Technology: The Backbone Of Cryptocurrency

Blockchain technology serves as the underlying framework for cryptocurrencies. It is a decentralized ledger that records all transactions across a network of computers in an immutable manner.  

Each transaction is grouped into blocks, which are linked together to form a chain, hence the name “blockchain.” This technology allows for secure and transparent record-keeping without the need for a central authority, making it resistant to tampering and fraud.

The Birth of Cryptocurrencies: A Historical Overview

The concept of cryptocurrencies was introduced with the publication of a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” by an individual or group under the pseudonym Satoshi Nakamoto in 2008. This document focussed on the principles of decentralized digital currency that would allow for secure online transactions without  intermediaries.               

A brief timeline of the Bitcoin

2009: Bitcoin launched, introducing the world to decentralized digital currency. 

2013: Bitcoin was named the best investment of the year by Forbes.

2014: Bloomberg shifted the narrative, proclaiming Bitcoin the year’s worst investment.

2021: The Securities and Exchange Commission (SEC) approved ProShares Bitcoin Strategy (ticker: BITO), the first U.S. Bitcoin futures exchange-traded fund (ETF).

2022: FTX, the leading cryptocurrency exchange by trading volume, declared bankruptcy.

2024: SEC approved 11 spot Bitcoin ETFs.

2024: SEC gave final approval for spot Ether (ETH) ETFs to start trading, further legitimizing the asset class.

Key Achievements in Cryptocurrency Development

Current Landscape Of The Crypto Market

As of January 29, 2025, cryptocurrencies have evolved into a multi-trillion-dollar market with thousands of different coins and tokens available. Blockchain technology has also expanded beyond cryptocurrencies into various sectors such as supply chain management, healthcare, and finance, demonstrating its versatility and potential for innovation.A report  highlighted the remarkable achievements in the crypto space in 2024, notably Bitcoin surpassing the $100K mark and the total crypto market cap reaching unprecedented highs. The introduction of spot Bitcoin and Ethereum ETFs was a significant driver, attracting over $35 billion in net inflows, significantly outperforming gold ETFs during their initial years.

Is Cryptocurrency a Speculative Bubble? 

Imagine the stock market as a balloon being inflated. As demand increases, so does the price, inserting more and more air into the balloon to a point where it cannot be inflated anymore and it bursts.  

Bubbles often originate from market shocks, such as the excitement surrounding a new technology, the discovery of natural resources, or strong financial performance. Although some price increases may be justified by these considerations, speculation may take over. 

Such a speculative bubble is created when there is certain hype about an asset. This hype can stem from wild speculation, availability of cheap credit, or psychological factors like the herd mentality or the bandwagon effect, where people invest simply because others are doing so. This augments the price and people end up paying way more than the asset’s fundamental value. But the inflated prices are detached from reality, ultimately setting the stage for downfall. When the bubble finally pops, demand plummets and prices collapse. 

Volatility in the Cryptocurrency market

The future of cryptocurrency is still uncertain. The lack of an underlying security or proper regulation makes it a very volatile market. An example of this volatility is the Bitcoin Crash of May 2021. The price of a single coin had soared up to $64,000 but dropped to $31,000 at one point. First, Elon Musk went back on his promise to accept Bitcoin as payment for Tesla, expressing his concern for the carbon footprint of Cryptocurrency. Secondly, the Chinese central bank refused to take digital payments as currencies. This increased caution on bitcoin caused panic selling, making the pierce splunge. Other Cryptocurrencies like Etheruem, Dogecoin and Binance also experienced 30-40% fall in values. 

Is Cryptocurrency Truly Valuable? 

There are arguments against Crypto lacking any intrinsic value. Unlike traditional securities like government bonds and stocks which are backed by institutions and promise some returns, Cryptocurrency has no underlying basis of deriving its value. Even gold does not have a financial yield as such. Though its industrial and ornamental use and limited supply gives it its value. 

The same argument, however, can be made about fiat money. A paper note holds no intrinsic value. Inherently it is merely a piece of paper which becomes valuable because the government declares it so. Similarly, cryptocurrency is also a digital currency but it has not yet gained widespread acceptance as a legal tender. So the key question is not whether it has value but rather how its value would be defined in the future. 

Is History Repeating Itself: Dot Com Bubble vs Cryptocurrency 

The Dot Com bubble, also known as the Internet Bubble experienced one of the greatest financial bubbles of all time. 

In the late 1990s, the world was consumed with a utopian idea of the Internet– a new information superhighway. It had only 16 million users at that time, as opposed to almost 6 billion users today. The idea that was promised to investors was that the internet would in the future revolutionize the world and that everyone would have access to it. Thus began the Dot-Com Bubble which grew from excitement of the new technology, speculation or FOMO investing because people were scared they would miss out on a get-rich-quick opportunity. 

Many of these internet-based companies that were worth millions did not allocate their resources properly and had no proper business model. Eventually their money dried up and investors started panic selling, realizing these companies had no real potential. This caused the bubble to pop with losses recorded up to $1.7 trillion. 

In the Dot-Com bubble, a billionaire, Masayoshi Son, created the record of largest loss (more than $59 billion) in human history. This record was topped by Changpeng Zhaoin who lost more than $78 billion in Crypto. 

While hundreds of companies died down, there were a few companies that survived: the winner takes all. Among the survivors were Google, Microsoft, Apple, Amazon which are companies now widely known. 

Noting this similarity between the rise of Cryptocurrency and the Dot-com bubble raises the question–Is history repeating itself? 

There were many arguments against the Internet being a Ponzi Scheme or that the technology would not last long. But it is now impossible to imagine a world without the Internet. Cryptocurrency based on the Blockchain Technology could potentially revolutionise the financial system–or not. 

Financial Revolution or Risky Speculation? The Case For and Against Crypto

Arguments For Cryptocurrency

  1. Decentralization: The system of Cryptocurrencies operates on decentralized networks, which eliminates the need for intermediaries like banks. This helps in  reducing the  transaction costs and enhancing  efficiency in financial transactions, which leads to creation of more resilient systems less prone to failures associated with centralized institutions.Blockchain-based platforms enable peer-to-peer lending and microfinance, bypassing traditional credit processes. Individuals with limited credit histories or collateral can now obtain loans and financial services that were previously unavailable.
  2. Financial Inclusion: Cryptocurrencies can provide access to financial services for unbanked populations. With just a smartphone and internet connection, individuals can engage in financial transactions, empowering them economically.Anyone with an internet connection can access cryptocurrencies, removing geographical limits. Individuals in rural places who do not have access to traditional financial infrastructure can now engage in the digital economy.When compared to existing financial systems, cryptocurrency transactions can be much cheaper, especially for cross-border transactions. This cost-cutting measure makes financial services more inexpensive and accessible to people with limited financial resources.
  3. Transparency and Security: The blockchain technology underlying cryptocurrencies offers a transparent and immutable ledger of transactions, increasing security and trust among users. This transparency can help reduce fraud and enhance accountability in financial dealings.
  4. Innovative Financial Products: The rise of decentralized finance (DeFi) platforms allows users to lend, borrow, and trade without traditional financial institutions, fostering innovation and new financial instruments that could reshape the industry.

Arguments Against Cryptocurrency

  1. Volatility: Cryptocurrencies are often subject to extreme price fluctuations, which can deter their use as stable mediums of exchange or stores of value. This volatility is primarily driven by several factors, including market sentiment, supply and demand dynamics, and the relatively immature nature of the cryptocurrency market. For instance, significant news events, regulatory changes, or technological advancements can lead to rapid price changes within hours or even minutes. The lack of liquidity in many cryptocurrencies exacerbates this volatility, as large trades by “whales” (individuals or entities holding substantial amounts of cryptocurrency) can cause sharp price movements. Consequently, potential users and investors may view cryptocurrencies as too risky for everyday transactions, limiting their broader adoption in the financial ecosystem.
  2. Regulatory Concerns:The lack of regulation in the cryptocurrency market poses risks related to consumer protection, money laundering, and fraud. Governments worldwide are still figuring out how to effectively regulate these digital assets while balancing innovation with security. This regulatory uncertainty can create a challenging environment for investors and businesses looking to engage with cryptocurrencies. For example, sudden regulatory actions—like bans on cryptocurrency trading or mining in certain countries—can lead to significant market disruptions and loss of investor confidence. Moreover, the absence of a clear legal framework can expose users to scams and fraudulent schemes, further complicating the landscape for legitimate participants in the market.
  3. Environmental Impact: The energy-intensive nature of cryptocurrency mining, particularly for Bitcoin, has raised significant environmental concerns regarding sustainability and carbon footprints. Bitcoin mining requires substantial computational power to solve complex mathematical problems, leading to high electricity consumption. Critics argue that this energy usage contributes to climate change and undermines global sustainability efforts. As awareness of environmental issues grows, there is increasing pressure on the cryptocurrency industry to adopt more eco-friendly practices or transition to less energy-intensive consensus mechanisms like proof-of-stake. This scrutiny could impact public perception and acceptance of cryptocurrencies as viable alternatives to traditional financial systems.
  4. Potential for Illicit Use: Cryptocurrencies can facilitate illegal activities due to their pseudonymous nature, making them attractive for criminal enterprises. While proponents argue that the majority of cryptocurrency transactions are legitimate, the association with illicit activities such as money laundering, drug trafficking, and ransomware attacks raises significant concerns about their impact on society. The difficulty in tracing transactions can hinder law enforcement efforts to combat crime effectively. Additionally, this potential for misuse may prompt governments to impose stricter regulations on cryptocurrencies, which could stifle innovation and limit their legitimate use cases.

How Blockchain Technology Underpins Cryptocurrencies

Blockchain technology is the foundational framework for cryptocurrencies. Similar to decentralized ledger it records all transactions across a network of computers. Its key features would include the following:

  • Immutability: Once data is recorded on the blockchain, it cannot be altered or deleted, ensuring the integrity of transaction records.
  • Transparency: All transactions are visible to participants in the network, fostering trust among users.
  • Security: Cryptographic techniques secure transactions and control the creation of new units, making it difficult for malicious actors to manipulate the system.

Innovations Introduced by Blockchain

  1. Decentralized Finance (DeFi): DeFi platforms enable users to engage in financial activities such as lending, borrowing, and trading without intermediaries. These platforms utilize smart contracts to automate processes and reduce costs.
  2. Smart Contracts: Self-executing contracts with terms directly written into code allow for automated and trustless agreements between parties. They have applications beyond finance, including supply chain management and real estate.
  3. Tokenization: Blockchain allows for the tokenization of assets—real estate, art, or stocks—enabling fractional ownership and increased liquidity in traditionally illiquid markets.

Use Cases of Cryptocurrency as a Legitimate Financial Tool

  1. Peer-to-Peer Transactions: Cryptocurrencies facilitate direct transactions between individuals without intermediaries, leading to lower fees and faster transaction times compared to traditional banking systems.
  2. Cross-Border Remittances: Cryptocurrencies provide an efficient means for cross-border remittances, often with lower fees than traditional remittance services. This is particularly beneficial for migrant workers sending money home.
  3. Hedge Against Inflation: In countries experiencing hyperinflation or economic instability, cryptocurrencies like Bitcoin are viewed as a store of value that can protect wealth from devaluation.

Examples of Institutional Adoption

  • Companies Accepting Bitcoin: Major corporations such as Tesla and Square have begun accepting Bitcoin as payment for goods and services, signaling growing acceptance among mainstream businesses1.
  • Central Bank Digital Currencies (CBDCs): Various countries are exploring or implementing CBDCs as a way to harness blockchain technology while maintaining regulatory oversight. For example, China’s digital yuan is currently being tested in various regions. 

Conclusion

Cryptocurrency shows a duality in nature. It has the volatility and uncertainty of a speculative bubble but also a technological innovation that could potentially reshape the financial system in the long-term. As a speculative bubble it showcases price fluctuations, instances of frauds, hype-driven investments and speculative trading, similar to the Dot-Com Bubble. But as the internet evolved– facing early skepticism but eventually becoming essential, Blockchain technology could do the same Whether it is a bubble or a revolution depends on long-term adoption, regulation, and real-world use cases.

References: