Cryptocurrencies: The incredible bitcoin bubble
“It’s a bull market with few precedents in recent investing history,” said Nathaniel Popper in The New York Times. The digital currency bitcoin has “skyrocketed” over the past two months, leaving even its biggest champions “dumbstruck.” This week, the value of a single bitcoin briefly topped $17,000, just two months after it crossed $5,000 for the first time; in January, it was trading for about $800. An electronic cryptocurrency with no physical denominations, bitcoin exists and changes hands via the internet, with new coins created by “miners” all over the world who use powerful computers to verify and approve other users’ bitcoin transactions on what’s known as the blockchain. Most people now buying bitcoin are doing so in the belief that it will only increase in popularity and desirability. “The gains, though, have many people, even bitcoin believers, anticipating a big crash.”
There are “countless theories about why bitcoin’s valuation has gone berserk,” said Derek Thompson in The Atlantic. The most important one is probably the entrance into the market of Wall Street firms, hedge funds, and other institutional investors, who still see bitcoin as fringe but have come to consider the underlying blockchain as a “potentially transformative technology.” Bitcoin’s status as a kind of “digital gold,” which could be used as a hedge against inflation or trouble in the global economy, is also a factor in the enthusiasm. But it’s also very possible that this is simply an “unprecedentedly dumb bubble built on ludicrous speculation.” Whatever the reason, the days when bitcoin was associated with online drug dealers and others who prized its anonymity feel long gone, said Renae Merle in The Washington Post. Last week, the accounting firm PwC said it had accepted bitcoin as payment for services for the first time. This week brought another “landmark” event: The Chicago Board Options Exchange began trading bitcoin futures for the first time. These developments give the currency a “veneer of legitimacy” and will only push it further “into the mainstream.”
If you ask me, bitcoin is “still a dumb investment. In fact, dumber than ever,” said Michael Hiltzik in the Los Angeles Times. Its recent rise “has outpaced almost all the great bubbles of the past,” from the 1990s dot-com bubble to the 1980s boom-bust in Japanese stocks, and even the 1720 crash of the South Sea Co. “The only investment craze that has outpaced bitcoin thus far is thought to be the Dutch tulip mania of the 1630s.” I understand that its champions love it for its independence from any central bank, but when a price can swing 20 percent “in a matter of hours,” all I see are red flags. “For now, the rise of bitcoin seems divorced from any fundamental rationale.” And that feels like reason enough to steer clear.