Bitcoin might be here to stay - but its bubble will burst (more than once)
You might have read of few of my recent articles on the subject of crypto-currency--specifically, Bitcoin. The reason I keep going back to the subject is because I find it endlessly fascinating. I mean, times sure have changed since my early childhood in Kansas. I used to earn extra money collecting cans and I didn’t know anybody with cable or a home computer. Nowadays almost everyone has cable (review previous articles on saving money by cutting cable) and millions have computers with internet access. Now, we have a world wide digital currency. Since this new type of currency has no country to call home, in theory, anyone with a computer could have access to it.
In my opinion, the ever expanding availability of crypto-currency around the world is probably what has been driving up the price as of late. People seem to believe the currency has merit, but it might take some time to pop the bubbles and establish itself as a stable trading currency (commodity?).
New Chinese investors driving up the price?
The oldest Bitcoin site in China is called BTC China and was recently the subject of an article by Tech Crunch. The article states that BTC China just secured a $5 million dollar cash injection from Lightspeed China Partners. The CEO of BTC China said the money will be used for “general operating expenses”, and to “aggressively grow and expand the business”. I guess this means they want to greatly expose Bitcoin to potential investors in China who may not have heard of it yet. This could potentially drive the price up even further to unknown levels before the eventual crash that is bound to happen.
Does Bitcoin behave more like a currency or a commodity?
This is a question that many have tried to answer and usually end up saying it is somewhere in the middle. Because of its potential for daily volatile price fluctuations (I just witnessed it go from $800 to $890 and then down to $659 in matter of minutes on the Cryptoticker app), the use of the Bitcoin as a type of fiat currency will always be limited. Why is that? The reason is someone is most likely to get the raw end of the stick no matter what the transaction. The price could go up or down in either direction any hour of the day, seven days a week. This isn’t necessarily a good thing if you charge set prices for your goods or services.
If you want to run a coffee shop that accepts Bitcoins, you might have problems before you can convert them to cash. If you charge the equivalent of $5 worth of Bitcoins for your coffee and the price of Bitcoin drops 20% on the day you just accepted $250 worth of the crypto-currency...you have just lost $50. It tends to make it difficult to meet set bills such as utilities and payroll when you never know what the price will be before you can cash out.
The meat of the potatoes
Whatever force is driving up Bitcoin’s value seems to have taken hold of the market at this time and there is no end in site. Can it move past the price of gold? Can it double or even triple the price of gold? The answer to both of those questions is a resounding yes. The value could just as easily be $1 as it could be $5000 (it was $808 at the time of this article being posted on 11/18/2013). The value will always be determined by those who want to purchase it and/or any time it makes the news circuits. This bubble will have to burst at some point, but until that happens it looks like countless investors could jump on board the Bit-train (or Bit-wagon, take your pick) for the ride of their lives.
Update 11/19/2013 :
Major breakthrough? Federal officials indicate that Bitcoin might have long term value. Advise that it could become part of the overall financial landscape of the future.
Check out the current Bitcoin chart.
Photo credits : Pixabay, Cryptoticker app screenshot (taken 11/18/2013) and a screenshot of BTC China logo taken from their website.