Bitcoin makes other bubbles look tame

From USA Today:

Throughout history, investment bubbles have emerged around things such as tulips, uranium, real estate, dot-coms and housing debt. But perhaps none is crazier than the recent panic buying of bitcoin.

Even after a late-December swoon, the price of a single bitcoin ended 2017 at nearly $14,000. That’s a fourteenfold increase from where it started the year, this at a time when usage of bitcoin for its intended purpose — as a computerized method of transferring value — was up only modestly.

Bitcoins aren’t really a currency. They lack the one thing common to currencies: widespread acceptance. They also lack the tangible qualities that are the hallmark of commodities. They function as a method of exchanging real currencies in a way that bypasses the confiscatory fees of banks and the prying eyes of governments. They behave like stock in a red hot company whose sole product is an elegant form of encryption that keeps bitcoins from being counterfeited or stolen.

Just how useful bitcoins will be in the future is anyone’s guess. They might well have a purpose in competing with banks and limiting the power of governments. For the time being, however, they are most useful to drug dealers, tax evaders and people who live in countries with onerous capital controls.

Considering this limited usage, and the fact that there is nothing to stop competitors from emerging, the notional value of all bitcoins ($250 billion) seems fantastically steep. What is not so hard to see is that they make other investing crazes look tame. Even if your idiot neighbour claims he made a bitcoin killing, we’d suggest alternative investment vehicles for the family nest egg.