“It’s a bubble…You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven’t been able to do it. Maybe somebody else can.”
That’s what former Federal Reserve chairman Alan Greenspan had to say about Bitcoin. In an interview with Bloomberg Television, the 87-year-old said that Bitcoin surging price is unsustainable and and that virtual money isn’t currency.
Now I balk at the thought of agreeing with Greenspan (he refused to recognise the housing bubble in the US, but Bitcoin bubble he can spot?), but this time, I have to grudgingly take his side.
Maybe slamming virtual currency as a ‘non-currency’ is a bit harsh, but I certainly agree with his view that the nearly 8,000% jump in the value of Bitcoin in the past 12 months is unsustainable.
Of course, there’s a lot of sniggering about hs comments in cyberspace, and this report from Business Insider provides some entertaining (read scathing) responses to Greenspan’s remarks.
Still, Greenspan is not alone in entertaining suspicions about Bitcoin’s astronomical ascent. A Forbes report also tagged Bitcoin mania as a bubble, noting that the safety factor (or lack thereof) is one reason why Bitcoin is still miles away from developing into a full-fledged digital currency.
“Cyber gangs are developing malware to steal individuals bitcoin purses on line… And as security matters grow, users of the virtual fiat, including investors, might bail for something else,” the report notes notes.
Over at CNBC, Peter Schiff, a long-time investor in gold, is also not feeling the love and declared that the virtual currency’s price surge was more likely “tulip mania 2.0″ — a reference to the spectacular rise and fall in the price of tulip bulbs in the 17th century.
The editor of Business Insider also seems to share the same sentiment, judging by what he wrote recently: “There is absolutely no way to value Bitcoin, which means there is nothing constraining its price other than supply and demand.
“As long someone new can be convinced to buy Bitcoin, its price can keep rising. Bitcoin prices could literally go to 1,000 or 10,000 or 100,000 or 1 million per coin, and there would be no way to prove that these prices were ridiculous. What’s more, even if Bitcoin is a bubble, prices could keep rising for years.”
Of course, not everyone thinks Bitcoin is an easy-come, easy-go fad.
A Washington Post blog came out in support of the still-mysterious-to-many digital currency, saying Bitcoin, like the PC and the Internet, “provides general-purpose infrastructure that anyone can use to build powerful applications. There’s no way to know how important those applications will be. But judging Bitcoin by its current applications is making the same mistake as dismissing the early Internet because Usenet and FTP were clunky.”
Despite my skepticism about Bitcoin’s price, I think the argument on Bitcoin’s future is quite reasonable. Nevertheless, I maintain that Bitcoin’s price is flaky right now.
Guess who else is taking Bitcoin seriously (or at least not dismissing it outright as a flight of financial fancy)? China. Yes, Chinese investors definitely think Bitcoin is cool, given that more than half of the global trade in Bitcoins is now occurring on trade exchanges that deal in the Chinese yuan.
Happily for Chinese investors, the Chinese central bank has said that while it would be impossible for it to recognise Bitcoin as a legitimate financial instrument, people were free to participate in the Bitcoin market.
Translation: The central bank doesn’t plan to ban Bitcoin any time soon.
In the US, some important government agencies have also given their cautious approval to digital currencies, as this Bloomberg report highlights.
Still, the fact remains that there is no real consensus on where Bitcoin is headed from here, sizzling prices notwithstanding. There’s probably plenty of steam left in this price rally before we discover how Bitcoin’s future as a digital currency actually plays out.
I also think we’ll still be talking about Bitcoin in 2014.