Bitcoin passes $1,000 but only number that matters is zero
Cryptocurrency trading not even a rounding error in the world of modern finance
YESTERDAY by: Dan McCrum
In case bitcoin crept into your consciousness during a quiet first week of the year, because the price of the so-called cryptocurrency has passed a notable round number in dollars — $1,000 — most questions about the technological curiosity can be answered with another easy to remember figure: zero.
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For instance, the Bank for International Settlements estimates the amount traded daily for the world’s 180 or so recognised currencies. Last year this ranged from $4.4tn in dollars, down to $1bn for the 37th most actively traded, the Bulgarian lev. In this context, the sum of bitcoin transactions rounds to zero.
Another measure might be the collective value of bitcoins, which stood at $16bn on Tuesday according to Bitcoin Info. Currencies aren’t normally discussed in terms of their overall worth, as they are supposed to be mediums of exchange rather than some absolute store of value. Still, for context, the Central Intelligence Agency put the planet’s stock of broad money — notes, coins, and various forms of bank account — at $82tn as of the end of 2014.
On the CIA figures, the value of bitcoins hashed into existence is similar to the broad money total for Uzbekistani soms. With apologies to Tashkent, the value of soms and bitcoins, and the number of people for whom they are relevant pieces of information in the world of modern finance, both round to zero.
Treat bitcoins as an investment and even if they could all be sold today for $1,000 apiece, they would only be worth as much as the Cerner Corporation, a US company of moderate size and limited profile involved in the management of digital healthcare records.
Except treating bitcoin as an investment means it can’t be a currency, and vice versa. The problem is that a medium of exchange prone to collapsing or quadrupling in price is useless as a practical currency, whatever the cryptographic elegance of its creation.
As a phenomenon bitcoin has all the attributes of a pyramid scheme, requiring a constant influx of converts to push up the price, based on the promise of its use by future converts. So the ultimate value for bitcoin will be the same as all pyramid schemes: zero.
dan.mccrum@ft.com
