FT article "Time to take the Bitcoin bubble seriously"

[joburgtaxi]

http://www.ft.com/cms/s/0/4ad1bba0-61fa-11e3-aa02-00144feabdc0.html#axzz2nAMN1VPO

[LiteCoinGuy]

paywall...

The moment has come to take Bitcoin seriously. This month has seen notes on the online currency from mainstream foreign exchange analysts at Wall Street banks Citi and BofA Merrill Lynch. When Wall Street has to take Bitcoin seriously, the online currency has arrived.

However, governments and central banks are also now taking Bitcoin seriously. This week has also brought news that Baidu, the Chinese search engine, would no longer accept Bitcoins as payment, after the People’s Bank of China ruled that Chinese banks should not process or insure Bitcoin transactions.


So should investors also be taking Bitcoins seriously? There are two levels to this question, as Bitcoin aims to take at least two of the roles played by a currency; first as a store of value, and second as a means of exchange.

Its role as a store of value is encouraged by its founding computer algorithms, which guarantee continued scarcity. This gives it an appeal compared with “fiat” money, created for governments by central banks, where there is no limit on supply.

But, unlike fiat money, nobody is legally required to accept it. As Brown Brothers Harriman’s forex analyst Marc Chandler points out, creating such money remains a monopoly of governments. They are not likely to give it up.
Cryptographic defences

Therefore its value rests on perception – what people think it is worth. The same is true of gold. But millennia of history demonstrate that humans perceive some intrinsic value in a shiny metal. Bitcoins have only been around since 2009.

BofA Merrill Lynch’s heroic assumptions suggest that at very best Bitcoins might one day gain a reputation to equal that of silver, which is perceived as worth only a 60th of gold. That implies a total value of about $5bn – far below its recent implicit valuation of $13bn.

However, as a means of exchange, Bitcoin’s layers of cryptographic defences, the ability to pay instantly, and the security that comes with the ability to trace each transaction made with each coin, all offer intriguing advantages.

So far, it is not widely accepted. But this year’s hubbub of excitement over the currency suggests that it could be.
In depth

Bitcoin
Bitcoin

Increased trading in the decentralised virtual currency has begun to attract the attention of regulators

Merrill’s grand back-of-an-envelope estimate is that it might account for as much as 10 per cent of global online transactions, and of international worker remittances (which would again be a remarkable success). On that basis, Bitcoins could fund annual transactions worth $9.5bn in today’s money.

It is easy to poke fun at such huge extrapolations, but hard to come up with anything better. In any case, the point of Merrill’s guesswork is that even if Bitcoin is as successful as it is possible now to imagine, it looks overvalued at recent prices. It is in a bubble.

But this does not prove that the concept has no future. Shares in Amazon.com were also in a bubble in the late 1990s, and yet proved a great long-term investment after the bubble burst. Wild swings in value are typical when new technologies arrive.
Built-in scarcity

There is a further problem. Bitcoin, as Citi’s Stephen Englander points out, is replicable. The genius of the new currency is that it has built-in scarcity. But if the concept catches on as a means of payment, then demand will increase, and that scarcity will get in the way of its ability to function as a means of payment.

It is not possible to conjure up a new precious metal to deal with this problem. But it is possible to conjure up new online currencies and that is already happening.

This could be an investment opportunity. Rather than an alternative to fiat currencies, Bitcoin has a role in a critical trend; the disintermediation of banks. African tribesmen can now pay each other using their mobile phones, without involving a bank. Crowdsourcing systems raise loans over the internet without involving a bank. Internet currencies are part of the same trend.

Does Bitcoin have first-mover advantage? Will other currencies be able to compete? Again, compare with Amazon. It used its first-mover advantage to become the dominant online retailer, as did eBay in online auctions. Yet both contended with plenty of me-too rivals who were briefly valued very richly by the stock market.

In internet search, first-mover advantage was no use to AltaVista, for a year or two as dominant as Google was to become. The same proved true for MySpace among social networks, or AOL among internet service providers.

It is too soon to bet that Bitcoin will be the hegemonic online currency, but there is plenty of time to bet on its competitors.

Where does this leave us? Foreign exchange analysts agree, mostly off the record, that Bitcoin is not worthy of being treated as a real currency.

Buying Bitcoins while their price is so bubbly is nothing more than a gamble. Investing in other online currencies, or in companies that can help the Bitcoin economy develop, looks like a sensible use of a venture capitalist’s money.

[Carlton Banks]

Bullish.

FT spends months throwing as much mud as it can at bitcoin and the cryptocurrency concept, and then suddenly one day none of their previous contentions matter? It seems like they're being led by the emerging public opinion, and that opinion is increasingly becoming more open to possibility or outright favourable.  

And so the Financial Times are now saying "Um, don't buy the actual currency, it's, er, too risky [i.e. too much potential gains, we'll handle that risk...]. Go invest in the startups, yeah! [then we can try to use our establishment influence together with our newly purchased bitcoin hoard to run them out of the market].

These people are major crooks: when their shill articles don't work, and they understand the inevitable trend, they try to herd their readership away from (literally) where the real money is.

[mccoyspace]

Bullish.

FT spends months throwing as much mud as it can at bitcoin and the cryptocurrency concept, and then suddenly one day none of their previous contentions matter? It seems like they're being led by the emerging public opinion, and that opinion is increasingly becoming more open to possibility or outright favourable.  

And so the Financial Times are now saying "Um, don't buy the actual currency, it's, er, too risky [i.e. too much potential gains, we'll handle that risk...]. Go invest in the startups, yeah! [then we can try to use our establishment influence together with our newly purchased bitcoin hoard to run them out of the market].

These people are major crooks: when their shill articles don't work, and they understand the inevitable trend, they try to herd their readership away from (literally) where the real money is.

Good points. It is a surprising about face. It is reasonable to pose the question about first mover advantage "will bitcoin go the way of Amazon/eBay or AOL/AltaVista/MySpace?"  But they dont give any basis for answering, making their call for alt-coins seem to have no real basis. 
Investing in crypto start ups is great to hear and a win-win all around.

[bluemeanie1]

so after the big investors jump in, 'its time to take Bitcoin seriously'?

[shields]

Buying Bitcoins while their price is so bubbly is nothing more than a gamble. Investing in other online currencies, or in companies that can help the Bitcoin economy develop, looks like a sensible use of a venture capitalist’s money.

[/i]

I would say the exact opposite of this, buying and holding Bitcoins seems much less risky than investing in a Bitcoin related company.  I've heard the dotcom crash mentioned in terms of Bitcoin, sure many dotcom companies got over-valued in the hype and were bad companies, or vapourware, but when it crashed the underlying technology did not, the number of people using the web or email did not drop. I can see a dotcom style bubble with Bitcoin but I see it with Bitcoin companies and alt coins, not with the protocol itself.

[hieroglyph]

It was time to take bitcoin seriously when it first came out!  Can't get over the sheer ignorance but at least they are coming around slowly but surely.

[Desensitizer]

You guys seem so angry that it took them so long but you have to appreciate the fact that the financial times has gotten onboard. They are a huge news publication and the more publicity we see the better. I just cannot wait for The Economist to write a story about how bitcoins are going to change the world and just how they think it will happen.

[TheJacob]

Nice headline. Sensationalist and makes no sense. Not "Time to take bitcoin seriously".

[Carlton Banks]

You guys seem so angry that it took them so long but you have to appreciate the fact that the financial times has gotten onboard. They are a huge news publication and the more publicity we see the better. I just cannot wait for The Economist to write a story about how bitcoins are going to change the world and just how they think it will happen.

The Economist? You might be in for a long wait. They've had a lot of time already, which they've used to do very little coverage. And when you examine their attitudes to the peripheral/converging ideologies to cryptocurrency, it's a mixed bag.

Financial innovation? Thumbs up. Hard currency? Thumbs down. Democratic systems? Thumbs up. Decentralisation? Thumbs down. Transparently open-market places? Thumbs up. Open source? Thumbs up (although it's actually an implicit thumbs down, as they still do not attribute their own articles to a named writer, let alone provide a citation of their sources)

Of course, alot of the ideals that The Economist espouses aren't a practical reality when they write about them. And they have a strange habit of making subtle volte-faces about issues they have championed for years when there becomes a realistic possibility that things may change in favour of the position they previously claimed. Drug liberalisation being a prime example; for many years they have argued a for the legal regulation and taxation of all illegal drugs. As soon as American states and Uruguay began to make steps in that direction, articles that either covered those specific cases, or with a tangential relationship to drugs in general, suddenly became faintly negative and disparaging. Large articles proclaiming the previous liberal stance disappeared altogether. They'll perhaps make a comeback, once drug distribution is strictly back in control of the criminal enterprises. Strange, eh?

[hilariousandco]

Only cryptoplebs don't take it seriously yet. I'm sure they'll be wishing they'd've taken it seriously when/if it goes complete mainstream.

[guybrushthreepwood]

Is it time to take Financial Times seriously?

[DeboraMeeks]

 Finally they understand that Bitcoins is a serious thing after spending ages in denying that though they keep using the 'bubble' word,but anyway any good publicity increasing demand and public knowledge of btc's is good.

[hashdollar]

Buying Bitcoins while their price is so bubbly is nothing more than a gamble. Investing in other online currencies, or in companies that can help the Bitcoin economy develop, looks like a sensible use of a venture capitalist’s money.

[/i]

I would say the exact opposite of this, buying and holding Bitcoins seems much less risky than investing in a Bitcoin related company.  I've heard the dotcom crash mentioned in terms of Bitcoin, sure many dotcom companies got over-valued in the hype and were bad companies, or vapourware, but when it crashed the underlying technology did not, the number of people using the web or email did not drop. I can see a dotcom style bubble with Bitcoin but I see it with Bitcoin companies and alt coins, not with the protocol itself.

We understand Bitcoin is an excellent investment (mostly because of its scarcity), but that becomes a problem to use it on a day-to-day basis as a regular currency. That's why we are developing Hash Dollar: to complement Bitcoin. People that don't like taking risks, can start accepting BTC and, after receiving payment, immediately exchange their Bitcoin for Hash Dollar.

[PenAndPaper]

Maybe the fact that ft became bullish for bitcoin is the reason that the price drops 

[n8rwJeTt8TrrLKPa55eU]

Two of the biggest historical naysayers/deniers, Joe Weisenthal & the FT (particularly Kaminska) finally figured out that they were reaching the point of unrecoverable reputational damage in the face of empirical evidence of Bitcoin growth and positive newsflow.

So they have reluctantly shifted from foaming at the mouth "tulippppppppp ponziiiiiiiiiii maniaaaaa" to the more dignified in-vogue hedge of "Bitcoin might have some technical merits, but it is doomed because...(pick from the current preferred list of canards & poorly-researched superficial excuses: volatility, myspace to facebook, deflation, illegal use, etc)".

The slow process of dragging mainstream media morons & shills forward, watching them squirm as they eat their own past words and acknowledge their utter lack of knowledge & vision, is priceless.  

Exposing most establishment reporters and pundits as clueless was Satoshi's second greatest gift to humanity.

[NeedForBitcoin]

Yet again, uninformed people confuse Bitcoin the protocol with Bitcoin as a product and it can't be compared to Myspace despite being the first huge social media site it lost its title to Facebook.

It should be compared the internet or email.