A few words about bitcoin…

Posted on juni 2, 2011

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Some years ago I sat down and studied classical financial bubbles. It was at the time when the stocks belonging to IT-companies rose sky high. Companies were regarded as financially sane even if their P/E-ratio  proofed that the companies were on the verge of bankrupcy. In Sweden the value of Boo.com increased with hundreds of percent in 1999 while the real profit of the PRODUCTION of the company dropped… A classical financial bubble… In 2000 it all ended with a crasch.

Today I have been studying the bitcoin-bubble.

In one way it seems interesting. A currency has been created that makes it possible to bypass the governments. An electronic currency. Interesting. VERY INTERESTING! (Read Rick Falkvinge for an explaination as to how it works!)

But… For the moment I just shake my head.

The value of bitcoin has increased 100.000% in a year, 55% in two weeks and 10% today only. That does NOT sound good at all…

Many have warned about the development (look here, and here and here). Others are more positive like ”Virtually shocking” and Rick Falkvinge who writes:

This can be hard to grasp. If you had changed 2,500 euros into bitcoin last spring, they would be worth more than two point five million euros today.

and

So why am I so certain that the value will continue to grow? So certain that I bet all of my own money on it? The supply of bitcoin is limited, and on a timescale of years, it is fairly constant. Nobody will issue more bitcoin to meet demand. This means that as more people exchange national currencies for bitcoin, the value of one bitcoin rises.

The sad thing is that the opponents do not see anything good in bitcoin while those that like bitcoin seems to be totally uncritical…

Just to make it clear. I do not believe that bitcoin is a scam. But I KNOW that increases like the one we can see at the moment, normally leads to craches, scam or no scam!

This does not mean that the TECHNOLOGY is bad.

In 1999 and 2000 we hade the bubble in the IT-market. Speculation is one thing, the technoloy another. In Sweden we also have the Dala Djupgas business.  It rose from 10000 SEK to 100000 SEK before it crashed. In the 1860 there was the railroad bubble. In the 1600s the tulip bubble…

And in 1848, my favourite. The speculation in cereals in the harbours of southern England. The cereals stayed in the storehouses but switched owners and the values increased and increased until… the rats came! With the rats the need to trow the mould cereals in the sea. And thus the bubble burst!

55% increase in two weeks… 100 000% increase in a year… Well, well… A classical pattern. We have seen all this before, many times!

But dont make the mistake to say that bitcoins as such are wrong, just because there is an ongoing speculation. The technology is always something else than the speculation on the technology.

And not all critique is good. Some say that bitcoins will have no pratical value because there is noone that coordinates it. no central bank behind it. The new thing is that WE create the market. If many starts to deal with it it will gain power and strength and thereby legitimization as currency. It gets the value that we want it to have.

But that wchish legitimizes it will also be the great danger to the new currency.

Lets hope it survives the crasch. If bitcoin does so, it will become interesting!

But if it is to survive, then some of its creators and defendors have to act differently and start to map out a longterm strategy for it, beyond speculation and crasches… IT IS NOT A GOOD SIGN THAT THE PEOPLE THAT LIKE BITCOIN DO NOT DISCUSS THE DANGERS OF THE SUDDEN RISE IN VALUE!

 

PS

I will write more about it to the weekend. But more about its positive sida. That individuals or groups of them creates a currency is nothing new (cupons in stores is a kind of currency). But that it is possible to do this in a large scale is something new. I find it fascinating!