The value of the electronic currency Bitcoin has hit a new high of $340.
This is not surprising.
Earlier this spring, when Bitcoin was in the middle of its last price spike, I “raised my Bitcoin target” to $400.
This was an inside joke — I don’t have a Bitcoin target. But I was getting at a more profound point. $400 is a perfectly reasonable target for Bitcoin. As is $1,000. As is $10,000 or $100,000 or $1 million.
And as is $0.01.
This is because Bitcoin has no inherent value. Its adherents refer to it as a “store of value,” but Bitcoin is only a “store of value” because, right now, its price keeps going up. Unlike gold or dollars or other things that have widely accepted utility, Bitcoin’s price is determined entirely by what someone else is willing to pay for it. Right now, because Bitcoin’s price is going up, and Bitcoin is in relatively short supply, people are willing to pay $340 for it. And the ever-increasing demand for Bitcoin will keep driving the price up until people don’t want to buy or hold it anymore.
At that point, by the way, the price of Bitcoin will collapse. And anyone who thinks it can’t collapse all the way to zero is delusional.
I have written extensively about Bitcoin.
I have explained why Bitcoin is the “perfect asset bubble.”
I also think, however, that it is highly likely that Bitcoin will prove to be a gigantic bubble, like Beanie Babies, Pogs, or, yes, tulip bulbs. Bitcoin has all the hallmarks of bubbles, including:
- A good underlying story
- A sexy “new-ness” that requires some work to understand
- A small and finite supply
- A fundamental “value” that is highly subjective and, therefore, justifiable at almost any level
- A high level of risk and excitement associated with trading it
- A passionate community of early adherents who are convinced of their own brilliance and lash out defensively at anyone who dares suggest that they are, in fact, hallucinating. (Don’t believe this? Diss Bitcoin on Twitter and see what happens. The Bitcoin Zealots are more aggressive and sillier than Apple fanboys.)
I have also described some of the major risks that could break the Bitcoin spell and lead to a price collapse. The biggest of these, I think, is that Bitcoin won’t ever be widely accepted — either because governments ban it or because it remains complicated and shadowy. (One of the biggest advantages of “dollars” is that they are accepted everywhere and are extremely easy to use. Bitcoin isn’t.)
I do think the world is ready for a simple, global, electronic currency, and that Bitcoin has a shot at becoming that. But this success is the farthest thing from guaranteed.
Having said that, I want to be clear about something:
In the months and years before we know the ultimate fate of Bitcoin, the price could do absolutely anything.
There is no limit to the price that Bitcoin could attain.
There is no theoretical difference between a price of $1 per Bitcoin and $1 million per Bitcoin. The only thing that will determine Bitcoin prices is what people are willing to pay them. And if enthusiasm about Bitcoin continues to move beyond a small group of digerati, cryptologists, and hard-money fanatics, Bitcoin’s price could go vastly higher.
It is perfectly reasonable to think that Bitcoin’s price could go to $1 million.
That’s not a prediction. It’s just a fact.
(I have no idea what Bitcoin prices are going to do. I also don’t own Bitcoin, so I don’t care what the price does. And I’m not “encouraging speculation.” I couldn’t care less whether you buy or don’t buy Bitcoin.)
So, there, I’ve said it.
Bitcoin is probably a gigantic bubble that will leave its early religious devotees looking and feeling like fools.
But in the meantime, Bitcoin could make them dynastically rich.
Because, yes, the price of Bitcoin could go all the way to $1 million.