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If Bitcoin is a bubble, it is a bubble that began deflating on November 29 2013. At its proudest moment the price of one unit of the much-ballyhooed virtual currency was $1,242, which meant the value of all the Bitcoins in the world was just under $14bn.
These days it trades mostly in a range of $450-$650 a coin and at a market cap of $6.5bn. The jury is still out on whether the Bitcoin technology will prove robust and the currency itself will find mainstream use. If the answer to either question is no, then no amount of hot air is likely to keep the price at current levels.
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But even as the Bitcoin price decays, there is another candidate for the bubble label: the market for the specially designed computers that hold the Bitcoin network together and “mine” for newly minted coins.
Nicolas Courtois, a senior cryptography lecturer at University College London, has calculated that at least $1bn has been invested in this “mining equipment”, and some miners, who wish not to be identified, suggest that could be a modest estimate.
Prices for the latest computer hardware have been chased higher because investors have required faster and faster machines to make narrower and narrower profits mining for Bitcoin.
Mr Courtois estimates a majority of investors are making a loss.
“It has been a very bad experience for most investors and a jackpot for a few lucky ones,” he says. “The bottom line is that the production of mining machines was much higher than expected and advertised.”
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