We’ve spent a good amount of time on our podcast debating Bitcoin, the virtual currency – from the feasibility of it as a currency to the sustainability of it. Dick Sharpe believed the bubble popped when the US dollar value of a Bitcoin fluctuated from $240 down to $99 in just a week. I disagreed, thinking this fluctuation is more to do with a market that does not know how to value this strange new commodity. While some people believe in the long term sustainability of Bitcoin as a currency, I do not. Bitcoin has a maximum number of currency that can be generated in its lifetime, which creates its scarcity – so it’s more of a commodity than a modern currency. Unfortunately for our modern economy, a commodity makes a lousy currency for one simple reason – no central bank. Central bank’s are needed to help smooth the roller coaster ride that is capitalism. Without them, the world would be faced with times of runaway inflation and high unemployment – neither of which help sustain a great society.
Then if Bitcoin is destined to fail, who will get hurt the most? Like I said previously, I don’t believe the price fluctuations alone are enough to call the bubble burst. After all, who gets hurt the most during this volatility? Those looking to sell their Bitcoins – which at the moment would mostly be hobbyists and weirdo fringe investors. Also, even though the price did jump up momentarily, the value of Bitcoin has actually been trending up for a long period of time, regardless of the jagged edges. Hobbyists are mostly not interested in selling, because for them Bitcoins are all about the technical mining process.So in general, I don’t think too many people were hurt by the large swings in market values.
The real bubble is being inflated now, as Bitcoin popularity continues to trend upwards – the development of third party company’s hoping to bank on the sustainability of Bitcoin. For the past year, small start-up companies have been receiving venture capital and angel investor funds and are developing tools designed for efficient storage and transactions of Bitcoin. I say this is the bubble, because when these companies fail (and they will), real people will lose their investments in these start-up companies; but more importantly, real people will lose their jobs. The engineers, designers, accountants, IT people going to work for these companies don’t stand a chance. Most of the people that go to work for a start-up know this, but collectively, it could be a big problem when the rest of the market deems Bitcoin useless.