The Difference Between Real Growth and Speculation (or The BitCoin Circlejerk Problem).

I had given up on writing on BitCoin because of the rather toxic community of people that seemed to appear whenever I wrote about it. They never left comments here, no instead they’d cherry pick my articles and then never attempt to read any of my further writings on the subject and then labelling me as a BitCoin cynic. It had gotten to the point where I simply couldn’t stomach most BitCoin articles because of the ensuing circlejerks that would follow afterwards where any valid criticism would be met with derision usually only found in Call of Duty matches. But the last couple months of stratospheric growth and volatility have had me pulling at my self impost reigns, just wanting to put these zealots in their place.

Since I can’t find anything better to post about it seems that today will be that day.

BitCoin Price Chart Jan13 to Dec13The last time I posted about BitCoins they were hovering around $25 (this was at the start of the year, mind you), a price that was not seen for a long time previously. It began a somewhat steady tend upwards after that however it then had another great jump into the $100~$200 range something I long expected to be completely unsustainable. It managed to keep around that area for a long time however but the end of October saw it begin an upward trend that didn’t show many signs of stopping until recently and the past couple weeks have been an insane roller coaster ride of fluctuating prices that no currency should ever undergo.

Much of the initial growth was attributed to the fact that China was now becoming interested in BitCoins and thus there was a whole new market of capital being injected into the economy. Whilst this might have fuelled the initial bump we saw back in the end of October the resulting stratospheric rise, where the price doubled in under a month, could simply not be the result of new investors buying into the market. The reasoning behind this is the fact that the transaction volumes did not escalate at a similar pace meaning those ridiculously unsustainable growth rates were driven by speculative investors looking to increase the value of their BitCoin portfolios, not a growing investor base.

The anointed champions of BitCoin won’t have a bar of that however, even when the vast majority of forums were flooded with people who were crying when they cashed out at $400, lamenting the fact they could have had 3 times more if they’d only waited another week. As I’ve said dozens of times in the past the fact that the primary use of BitCoin right now is speculative investment is antithetical to its aspirations to become a true currency. Indeed the fact that it’s deflationary means that it inherently encourages this kind of action rather than being a medium for the transfer of wealth between parties. Indeed the inflationary aspect of fiat currencies, which BitCoiners seem to hate for some reason, encourages people to spend it rather than simply hanging on to it.

The flow on effect of this rampant speculation is the wild fluctuations in value which make using it incredibly difficult for businesses. Indeed any business that was selling goods for BitCoin prior to the current crash has lost money on any goods they sold simply because of the fluctuations in price. Others would argue that typically the retailers are better off because the price of BitCoin trends upwards but history has shown that you simply can’t rely on that and it’s guaranteed that unless you exchange your BitCoins for hard currency immediately after purchases you’re likely to hit a period of instability where you’ll end up on the losing end of the equation.

Whilst I’m sure I’ve lost all the True BitCoin Believers at this point I feel I have to make the point that I think the idea of cryptocurrencies are great as they’d be a great alternate method for transferring wealth across the world. BitCoin has some fundamental issues, many of which can’t be solved by a simple work around here or there, and as such whilst I won’t advocate its wholesale abandonment I would encourage the development of alternatives to address these issues. Unfortunately none have been particularly forthcoming but as BitCoin continues to draw more attention to itself I can’t imagine they’re too far off and then hopefully we can have the decentralized method of transferring wealth all BitCoiners like to talk about.

 

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.