Much like my stance on Instagram I’ve seemingly been at odds with the BitCoin community ever since I penned my first post on it almost 2 years ago. The angst seems to stem primarily from the fact that I lumped it in with Ponzi schemes thanks to its early adopter favouritism and reliance on outside wealth injection. After the first crash however BitCoins started to show some stability and their intended function started to be their primary use. Indeed the amount of investment in the BitCoin ecosystem has sky-rocketed in the past year or so and this had led to a period of much more mild growth that was far more sustainable than its previous spikes were.
It was for that reason that I held my tongue on the latest round of price volatility as I assumed it was just the market recovering from the shock of the Pirateat40 scheme unravelling. That particular incident had all the makings of another price crash but it was obvious that whilst there was a great deal of value lost it wasn’t enough to make a lasting impression on the economy and it soon recovered back to a healthy percentage of its previous value. The last month however has started to show some worrying trends that hark back to the speculative bubble.
If you zoom in on either of those 2 ramps the gradients are frighteningly similar although the price jump is from $15 to $25 rather than $3 to $10. Whilst the value jump might not be as severe as it was before (~66% rather than 300%) it’s still cause for some concern due to the time frame that it has happened in. When the value jumps up this fast it encourages people to keep their BitCoins rather than using them and attracts those who are looking to make a return. This puts even more upward pressure on the price which eventually leads to the kind of value crash that happened back in 2011.
Others would disagree with me however, saying that its actually a great time to invest in BitCoins. The reasons Anzaldi gives for wanting you to invest in BitCoins however don’t make a whole lot of sense as he doesn’t believe this round of growth is unsustainable (and even admits that the only other thing that gives this kind of ROI are all scams) and that the reward halving coupled with the deployment of ASIC chips are what are behind this stratospheric, real growth. The fact of the matter is that neither of these really has any influence over the current market rate for BitCoins, it all comes down to what people are willing to pay for them.
Prior to the lead up of the previous crash BitCoins had already experienced some pretty crazy growth, going from prices measured in cents to dollars in the space of a couple months. This immediately led to a flood of people entering the market who were seeking fast returns and had no intention of using BitCoins for their intended purpose. This current round of growth feels eerily familiar to back then and with people seeing rapid growth its highly likely that those same speculators will come back. It’s those speculators that are driving the price of BitCoins up not the factors that Anzaldi claims. If they were the price would have begun this current upward trend back in November (it did go up, but not like this and stablized shortly after) and the introduction of ASICs is far more likely to flood the market with more coins as hardware investors look to recoup some of their investments, rather than holding onto them for the long haul.
This kind of wild volatility isn’t helping BitCoins intended use as an universal currency that was free of any central agency. If this growth spurt leads to a new stable equilibrium then no harm, no foul but it really does look like history repeating itself. I’m hopeful that the market is smart enough to realise this and not get caught up in a buy and hold spree however as they’ve managed to do that in the past. As long as we remember that it’s BitCoin’s worth is derived from its liquidity and not its value then these kinds of knife edge situations can be avoided.