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Author Topic: 2013-04-08 Business Spectator - The Bitcoin Bubble  (Read 752 times)
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April 08, 2013, 09:52:50 AM

Most people, if they’ve heard of Bitcoins, dismiss them as a crazy geek thing that has turned into a speculative bubble that will soon crash, so we can go back to forgetting about them again. But actually they are very interesting.

The price could still do anything – it could go to thousands of dollars like the price of a tulip in 1637 – because the amount that can be created, unlike either normal money or gold, is strictly limited to 21 million. At the moment there are about 11 million in circulation, with 25 new ones created every 10 minutes.

As the Federal Reserve and the Bank of Japan roll up their sleeves and get stuck into the Great Reflation, printing billions of dollars and yen every month, the limited supply of Bitcoins is proving very attractive to people who are losing faith in government managed money.


Is it the future of money? Well it seems to work, and it’s no more ephemeral than credit default swaps.

The Bitcoin price actually took off the day after the Cyprus government announced that it was going to impose a levy on all Cypriot bank accounts, including the smallest ones. It seems Spanish bank depositors were especially active buyers of Bitcoins that week, as they tried to find a safe place for their money.

So Bitcoins are both an ingenious and possibly acceptable solution to digital money, as well as being a speculative mania, just as tulips were a beautiful flower as well as being a mania for a short time.

Henry Blodget, the internet stock analyst from the 1990s who founded the US online publication Business Insider, wrote a nice column last week jokingly raising his price target for Bitcoins to $400, as he famously did with Amazon 15 years ago.

The parallel he drew was a telling one: “The odds Bitcoin speculators are looking at are similar to the odds early internet speculators were looking at: The most you can lose is 100 per cent of your bet. The most you can make, meanwhile, is theoretically unlimited. And in some circles, assuming only a limited amount of capital is wagered, those odds are what might be described as a 'good bet'.

"So let the speculation continue!"

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