On Bitcoin’s spectacular price volatility
BITCOIN was invented in 2008 and began trading in 2009. In 2010, the value of a single Bitcoin rose from around eight-hundredths of a cent to eight cents. In April 2011, it traded at 67 cents, before subsequently climbing to US$327 by November 2015. As recently as March 20 last year, Bitcoin traded at about US$6,200, but its price has since increased more than sevenfold.
Today, Bitcoin is a perfect, 12-year-old bubble. I once described gold as “shiny Bitcoin,” and characterized the metal’s price as a 6,000year-old bubble. That was a bit unfair to gold, which used to have intrinsic value as an industrial commodity (now largely redundant), and still does as a consumer durable widely used in jewelry.
Bitcoin, by contrast, has no intrinsic value; it never did and never will. It is a purely speculative asset — a private fiat currency — whose value is whatever the markets say it is.
But Bitcoin is also a socially wasteful speculative asset,
because it is expensive to produce. The cost of “mining” an additional Bitcoin — solving computational puzzles using energy-intensive digital equipment — increases at such a rate that the total stock of the cryptocurrency is capped at 21 million units.
Of course, even if Bitcoin’s protocol is not changed to allow for a larger supply, the whole exercise can be repeated through the issuance of Bitcoin 2, Bitcoin 3, and so on. The real costs of mining will thus be replicated, too. Moreover, there are already well-established cryptocurrencies operating in parallel with Bitcoin.
But as the success of government-issued fiat currencies shows, the universe of speculative bubbles is by no means restricted to cryptocurrencies like Bitcoin.
After all, in a world with flexible prices, there is always an equilibrium where everyone believes the official fiat currency has no value — in which case it consequently has no value. And there are infinitely many “non-fundamental” equilibria where the general price level — the reciprocal of the fiat currency’s price — either explodes and goes to infinity or implodes and falls to zero, even when the money stock remains fairly steady or does not change at all.
Finally, there is the unique “fundamental” equilibrium at which the price level (and the value of the currency) is positive and neither explodes nor implodes.
Tesla’s recent Bitcoin buy-in shows that a large additional buyer entering the market can boost the cryptocurrency’s price significantly, both directly (when markets are illiquid) and indirectly through demonstration and emulation effects. But an exit by a single important player would have a similar impact in the opposite direction. Positive or negative opinions voiced by market makers will have significant effects on Bitcoin’s price.
The cryptocurrency’s spectacular price volatility is not surprising. Deeply irrational market gyrations like the one that drove GameStop’s share price to unprecedented highs in January (followed by a significant correction) should serve as a reminder that, lacking any obvious fundamental value anchor, Bitcoin is likely to remain a textbook example of excess volatility.
This will not change with time. Bitcoin will continue to be an asset without intrinsic value whose market value can be anything or nothing. Only those with healthy risk appetites and a robust capacity to absorb losses should consider investing in it.
HAVING visited China’s Xinjiang five times since 1977, Dogu Perincek, chairman of the Patriotic Party of Turkey, continues to be impressed by the changes.
“Every time I visited Xinjiang, I could see a brand-new region,” Perincek said on the sidelines of an online briefing on the development of Xinjiang Uygur Autonomous Region.
He is impressed with Xinjiang’s leapfrogging economic and social progress, as well as the effective protection of its diverse ethnic cultures. “Wherever you turn on TV in Xinjiang, you can find a channel showing programs in the local ethnic language.”
The Turkish party leader is not alone to be awed by the changes in Xinjiang. Over 300 leaders of foreign parties and public figures from more than 80 countries and regions attended the online briefing held on Monday, shared their views on Xinjiang’s development, and dismissed rumors about the region once plagued by terrorism, extremism, and separatism.
Solly Mapaila, first deputy general secretary of South Africa’s Communist Party, has also been to Xinjiang and was amazed by the local living conditions and various improvements.
“All the lies that have been said about China, particularly about the region of Xinjiang, about elimination, are absolutely incorrect,” Mapaila said, adding that the end of absolute poverty in Xinjiang shows the efforts of the government and the Communist Party of China are “bearing fruit.”
Official statistics showed that from 2010 to 2018, the Uygur population in Xinjiang rose from 10.17 million to 12.72 million, an increase of 25.04 percent.
The growth rate of the Uygur population was not only higher than that of Xinjiang’s total population, which stood at 13.99 percent, but also higher than that of all ethnic minority groups at 22.14 percent, let alone the Han population’s 2 percent in the region. While dismissing rumors about Xinjiang, many foreign attendees voiced support and appreciation for policies that helped maintain Xinjiang’s stability and development.
Kawa Mahmoud, secretary of the Central Committee of the Kurdistan Communist Party/Iraq, said Xinjiang’s fight against terrorism and extremism is worth learning from as the region has posted steady and peaceful growth.
Xinjiang’s anti-terrorism and anti-extremism efforts are built on the protection of freedom of religion and powered by pro-development measures.
Sergey Sanakoev, president of the Asia-Pacific Region Research Center in Russia, attributed the sound social, economic and cultural developments in Xinjiang to socialism with Chinese characteristics, which puts the people’s well-being first.