In 2013, Cameron and Tyler Winklevoss filed the first application to operate a bitcoin exchange-traded fund in the US. The same year, the US-listed Grayscale Bitcoin Trust, which indirectly holds bitcoin, began trading – the trust owns shares in trusts that hold bitcoin. These actions were part of a push to popularise the ability to pay over the internet by computer code (rather than moving money electronically in bank-to-bank wire transfers).

In 2017, the US market overseer rejected the Winklevoss twin bid because bitcoin trades on unregulated foreign markets. That made easier ‘fraudulent or manipulative’ acts, the Securities and Exchange Commission said. Applications kept coming. Over time, the SEC rejected more than 20 other bids to manage bitcoin ETFs.

In 2023, however, the world’s biggest fund managers applied to run bitcoin ETFs. The applicants included BlackRock even though CEO Larry Fink six years earlier had condemned bitcoin as ‘an index of money laundering’.

On 10 January this year, while warning of the ‘myriad risks’ of bitcoin and other cryptocurrencies, the SEC explained it was forced to approve BlackRock’s and nine other bitcoin ETFs after a court ruled against its rationale for stopping Grayscale converting its clunky trust into an ETF.

The SEC’s approval, however reluctant, is a watershed because ETFs allow people to speculate on bitcoin’s price without owning the original cryptocurrency that was invented in 2008. From US$47,000 the day prior to SEC approval, bitcoin reached a record US$73,798 on 13 March after households and institutions piled into products they see as legitimate as stocks.

Thus, barely a year after bitcoin plunged to US$16,000 when crypto exchange FTX collapsed in November 2022, a means of exchange reeking of ‘dark web’ criminality appears to be entering the mainstream. US banking regulators are talking more favourably of cryptos. The SEC is expected to approve ethereum ETFs. The London Stock Exchange is open to crypto ETFs, as are UK regulators. Big banks including Merrill Lynch and Morgan Stanely are reportedly toying with launching bitcoin ETFs. Crypto is gaining use in countries with troubled official currencies. Bitcoin fans see that its designed scarcity will make the cryptocurrency the digital equal of gold as a store of value and hedge against inflation. Financial advisers are telling clients to buy bitcoin.

Perhaps the most credible claim of crypto is that about 130 central banks are investigating whether to launch central bank (or national) digital currencies. About 35 pilot projects of e-currency are underway including one involving China’s e-yuan.

Proponents say a national cyber currency would allow for instant payments, lower transaction costs and improve crime detection. Online accounts with central banks would help authorities reach the unbanked, micro-target fiscal stimulus, impose negative interest rates and enable ‘programmable money’ (when conditions are set on spending money). Digital money would give non-banks greater access to the central-bank balance sheets and instant settlement systems. An official crypto would counter the use of unsafe private ones.

Such are the hopes of crypto boosters. But the reality is this. Cryptos are complicated to buy, store and safekeep and, for transactions, can’t match a cheap instant payments system such as the 2020-launched Pix, which is now used by 80 per cent of Brazilians. Cryptos have no intrinsic value (whereas government fiat money has the intrinsic value that it’s accepted by the issuing government). Cryptos offer no income. Their prices are volatile. They are crime tools. Their infrastructure gobbles energy – whereas Pix needs no blockchain. Bitcoin is banned in nine countries and restricted in another nine including China. Global crypto use has nearly halved from its 2019 peak. Cryptos are losing appeal to ‘stablecoins’, which are usually backed by financial assets and have values linked to government money.

El Salvador in 2021 became the first country to adopt bitcoin as legal tender. But the experiment failed because people did not understand, trust nor accept the e-money that was plunging in value. The internet- and electricity-poor Central African Republic in 2022 made bitcoin official tender only to rescind the decision a year later. No other country plans to make bitcoin legal tender.

That leaves national digital coins as the way to popularise crypto. But don’t expect the mass use of ‘govcoin’. E-money’s traceability stirs alarm about privacy and gives authoritarians more ability to freeze accounts for political purposes. Other hurdles include cyber-security risks, how to enable offline use, whether foreigners will be allowed to use an e-money and whether e-money will pay interest.

The core drawback of central-bank money, ironically, is the public’s faith in such money. The (implicit) government guarantee undermines the 500-year-strong capitalist financial system that is based on private banks and fractional-reserve lending (where banks only need hold a portion of deposits and can lend the rest).

That people would favour e-money deposits at the central bank means private banks would struggle to attract and retain deposits. The trust mismatch heightens the latent risk of fatal bank runs. Commercial banks might need to turn to costlier and unstable funding (such as selling bonds to foreigners).

One solution would be to shift to full-reserve banking. But that would be another experiment as it’s practiced nowhere. Another solution would be to limit the amount of govcoin that could be issued. But that curbs its supposed benefits.

Perhaps e-currency could be held in mandated banking institutions, or central banks could make explicit their lender-of-last-resort powers for private banks. Maybe central banks could deposit issued e-currency with the banking system or create facilities to compensate banks for the loss of deposits during a crisis. Policymakers could shrink banking and encourage lending via capital markets or by super funds. These possibilities beg the question: why bother with e-money?

Bitcoin is soaring as many warn that record-high US stocks are pumped up on AI dreams and a belief Federal Reserve chief Jermone Powell is a magician. Bitcoin’s revival is more tied to this hype than grounded in crypto’s future mass appeal. Cryptocurrency is technology with no mainstream purpose.

That the technology exists, it’s newish and ripe for speculation mean cryptos will survive. Some central banks might introduce national digital currency is some form. But any mainstream push will die once internet money sparks bank runs.

The SEC rightly opposed bitcoin ETFs. Many bitcoin buyers taking part in what is essentially a Ponzi scheme might soon be sorry a court decision forced otherwise.