Bitcoin booms again: could you still coin it?
WHEN the US feds swooped on the Silk Road online drugs bazaar earlier this month, some thought the move might mark the coup de grace for the Bitcoin.
The site was one of the heaviest single users of the untraceable digital currency – the FBI seized 26,000 Bitcoins worth about $3.6m during the raid. But the value of the currency immediately plunged 33% on fears that the impact of the shutdown could wreak havoc on the overall Bitcoin “ecosystem”.
The strange thing is that it didn’t happen. In fact, the Bitcoin has bounced back so strongly that this week it broke through the $200 barrier for only the second time in its short history. Some reckon the price could soon top the $265 attained during the height of speculation fervour in April, when it looked like Cyprus was going to spark a major European banking crisis and people flocked to the Bitcoin – rather as they flock to gold – as an alternative store of value.
The new boom seems to have been fuelled by several factors. The uncertainty surrounding the US debt ceiling debacle saw the Bitcoin regain some of its status as a refuge. Speculators are also reportedly using it as a hedge against rising inflation in Argentina.
Some also think that the raid on Silk Road may have actually improved the nascent currency’s fortunes – by boosting its reputation and mainstream appeal. Although the site was by no means the only underground network making use of Bitcoins, the elimination of the biggest black market may well have made it a more comfortable proposition for legitimate businesses.
As if to ram home the point, the Chinese internet giant, Baidu, this month started accepting Bitcoins as a payment method, leading to an influx of Chinese investment in the currency. That has certainly contributed to the recent price surge.
Finally, there appears to be growing interest in the financial mainstream. Bloomberg is trialling a bitcoin ticker on its terminals – a massive leap forward for the so-called “hobbyists’ currency” – and financiers seem to be coming out of the closet by the day. “Put a little money in Bitcoin,” said Michael Novogratz, boss of the giant US fund manager Fortress, this week. “Come back in a few years and it’s going to be worth a lot.”
Should you really take his advice?
Certainly, for every new Bitcoin convert, you’ll find plenty pooh-poohing the idea that the virtual currency – beloved of wackos, weirdos and black marketeers – really has a future. As James Angel, a finance professor at Georgetown University told Bloomberg: “Bitcoin will be the Esperanto of the monetary world.” In other words, “a fad”.
Critics point out that you need only look at the Bitcoin’s provenance and trading history to experience qualms. Invented four years ago by a programmer, or group of programmers (no-one knows for sure), called Satoshi Nakomoto, prices have a history of wild movements. Back in January, you could have picked up Bitcoins for as little as $17 each. After a roller-coaster year, they’re now up by more than ten-fold, leaving many making comparisons with past manias like Dutch tulip fever.
Even so, the sheer volume of support for the Bitcoin suggests that 2013 may indeed go down as the year in which it came of age. Having already shown heaps more staying power than any other putative digital currency, it has begun attracting big-name investors with deep pockets. In May, Paypal founder Peter Thiel’s Founders Club led a $2m investment in BitPay Inc, which majors on technology enabling mainstream retailers to accept Bitcoin payments. Google has also got in on the act, as have half a dozen more big Silicon Valley backers.
They argue that the big commercial pull of digital currencies like Bitcoin is that they are truly global, enabling users to send cash around the world without the need of commission-charging intermediaries. Taken to the logical conclusion, Bitcoin could make a serious dent in the businesses of dominant players like Visa and Western Union.
There’s a sense that large-scale investment in the Bitcoin is on hold until regulators on both sides of the Atlantic have decided how to handle this hot new property. But in the meantime grass-roots activity continues apace.
You can buy Bitcoins quite easily via the main exchanges like Mt Gox. In Britain, both cBlockchain and Bitbargain have useful beginners’ tutorials. Clearly, this is a highly speculative market – don’t risk punting anything you cannot afford to lose – but it’s probably worth a taster. Given the strength of the current price, it might make sense to hold back for a drop. But if we’re in for another bout of brinkmanship on Capitol Hill in January, you might be in a position to bank a nice little New Year profit.