A friend recently asked if he should buy bitcoin. It hit the USD 42,000 level only a week ago having traded at the 10,000 back in October, and last weekend, volatility in bitcoin spiked and it dropped 20% in a couple of days. These moves have drawn a lot of attention and many are now asking whether it is time ‘to buy?’, not just in the US but also in Europe.
Bitcoin was intended to serve as a means of facilitating the transfer of money in a decentralized way (beyond the influence of governments and central banks) – and that in time it would spread as a means of retail payment. In a world where trust in institutions has been challenged since the global financial crisis, bitcoin has appealed to some as an alternative system of exchange.
A New System
Bitcoin is far away from meeting these objectives, and in my view is a ‘tulip’, a speculative, trading asset. It also seems to me that many people are increasingly happy with bitcoin being assigned this role, and much of the interest and eco-system that is developing around it underpins the role of bitcoin as a speculative asset rather than as a bona fide currency.
In particular, more banks and payment systems – notably PayPal
PayPal adopts bitcoin
At the same time, many of the highly dubious coin issues of recent years have been shut down by regulators, principally in the USA, though bitcoin remains a favourite means of transacting in the underworld.
More hedge funds that specialize in crypto currencies are on the rise, and crypto exchanges are readily attracting investment funding (Baakt the digital marketplace has recently announced a plan to go public through a special acquisition vehicle).
If the role of bitcoin (and crypto-currencies) as…