OTHER VIEWS The bitcoin bubble

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 US. That’s a 14-fold increase from where it started the year, this at a time when use of bitcoin for its intended purpose — as a computerized method of transferring value — was up only modestly.

By Wednesday evening, bitcoin was back to about $15,000 amid word that a venture-capital firm co-founded by Peter Thiel, one of Silicon Valley’s biggest names, had placed a major bet on the cryptocurrency.

Do investors, if that is the right word, know the value of what they are buying? Do they even know the nature of what they are buying? Gauging from the run-up, the answer to both questions appears to be no.

Their name notwithstanding, 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.

The future of bitcoins is murky. 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.