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Pedestrians walk past an advertisement displaying a Bitcoin cryptocurrency token on Feb. 15, 2022 in Hong Kong.Anthony Kwan/Getty Images

It’s been a good month for bitcoin, which has surged some 40 per cent to US$23,000. But is the rally built on real momentum? Is this the shining herald of a new bull market?

Probably not.

First, though, the good news: For the crypto folks, some have said the true bottom is reached only when there’s been so much scandal and stupidity that even industry people are utterly embarrassed to be associated with a sector or business – and we’re kind of there.

There have been humiliating implosions, such as those of the Celsius and Luna projects. There have been ridiculous criminal cases, such as the billion-dollar money laundering pinned on a rapper called “Razzlekhan.” There have been combinations of both, such as that of FTX and Sam Bankman-Fried, who seems to suffer from a chronic inability to stay out of trouble, having been hauled into court recently for contacting prosecution witnesses while out on bail.

Then there’s an episode of lesser note but no less noteworthy. The U.S. Securities and Exchange Commission recently dragged crypto company LBRY to court for allegedly improperly dealing in securities. In a hearing, SEC lawyers read out a tweet by the company: “We cannot emphasize enough how important it is to obscure your activity from U.S. regulatory agencies.”

On Twitter, LBRY later labelled SEC staff as “numerous liars and psychopaths.” When a former SEC official called out LBRY, its founder tweeted a SpongeBob meme involving a red nose, calling the critic a “clown.”

Bitcoin investors take control after FTX failure

The SEC and LBRY have reached a settlement in the case, but still, the whole affair was cringeworthy. It is not surprising that Conservative Leader Pierre Poilievre, who once wolfishly lusted after the crypto vote, now shuns it like Peter did Jesus.

How much lower can this industry sink? It is unlikely that, even if this current bounce turns out to be of the dead cat variety, bitcoin will fall back much further than its recent-memory bottom of US$15,000.

And, with current prices, had you bought bitcoin any time before the end of 2020 or any time after the middle of 2022, you would have made money – probably more money than if you had bought anything else. A buck made is a buck made. Bitcoin is no worse a place to do it than marijuana or Tesla Inc.

But let me tell you a secret: Everything has been rallying. Hot out of the gate, the stock market has been on a gravity-defying tear this year. With investors seeing an end to rampant inflation and hike-upon-hike interest-rate decisions, the S&P 500 is up almost 8 per cent.

Copper, a de facto barometer for bullishness in business sentiment, has risen more than 17 per cent this year. Rising more are risk assets such as tech stocks, with which bitcoin has had a strong correlation. Even a has-been, yesterday’s pick such as Meta Platforms Inc. is up more than 50 per cent.

Against that backdrop, bitcoin doesn’t seem to be surging based on any qualities of its own. It’s just one of the many boats all lifted by the same tide – and this wave is frothy.

Is this truly the end of rate hikes and the return of cheap money? This broader optimism buoying the stock market rally seems too early and too hopeful.

Grocery prices are still sky-high, but tickets for Taylor Swift can go for tens of thousands of dollars. The risk-asset lover Cathie Wood still gets to be on television. This week I got a news release titled “The advantages of chartering a yacht in 2023.”

Even if bitcoin is unlikely to bottom out again, its current rally, much like that of other risk assets, is built on a shaky foundation.

Moreover, historically, this is not the time for a sustained rally. In the pandemic-fuelled rally, bitcoin wasn’t in a confirmed uptrend until almost the end of 2020, nearly three years after its last peak of US$20,000.

And in between those three years of misleading dead-cat bounces, we have seen many. That includes the rally in the beginning of 2018, when bitcoin rose by – guess how much? – almost 40 per cent, to US$11,000, then stayed there for half a month before losing all those gains and sliding even lower.

We will likely not see too many drastic movements like that again. In percentage terms, bitcoin price movements have been trending tamer.

But it helps to be skeptical of the current rally all the same. It is not this day that bitcoin starts its journey toward some ridiculous number and, proverbially, the moon.