Bitcoin and other cryptocurrencies derive much of their value from panic about other assets, and about the governments standing behind real or “fiat” currencies. Yes, there are many governments it is wise to distrust. I just never thought ours could be one of them.
But many people now think it is. When people fear or distrust a government, for any reason, their money seeks alternatives to it, and Bitcoin is the latest.
Despite a nasty fork, which created Bitcoin Cash, and the possibility of another fork as early as November, the price of Bitcoin continues to rise.
As the July 18 fork approached the price of a Bitcoin fell, briefly, below $1,900. One month later, on Aug. 16, it was over $4,300. Something similar happened to Ethereum, the primary alternative token, which briefly fell to near $150 just before the fork, but was over $300 one month later.
The total value of the cryptocurrency market stood at $141 billion on Aug. 14. That’s a fraction of the value of all the “unicorn” companies out there, about $900 billion, and that in turn is a fraction of the capitalization of a U.S. stock exchange. (It’s close to the size of the Qatar stock market.)
While Bitcoin itself is said to be worth $71 billion, that’s just an estimate, created by multiplying the total supply by the price on the last trade. Still, even if the value were cut in half, its performance this year would be better than anything else you could own.
SoFi, Venmo and TransferWise are all advertising on New York City subway trains during what is described as a “summer of hell” caused by the need to repair the system. TransferWise has found special success focusing on both the low cost of its foreign exchange product and the immigrant dream of sending money back to loved ones.
A start-up called Indorse says it will reinvent the social network by paying those who contribute to it in Ethereum tokens. It’s looking for 25,093 in tokens through an Initial Coin Offering (ICO), as start-up capital — that’s about $7.662 million, at the Aug. 16 exchange rate of about $300. I’m certain Facebook Inc (NASDAQ:FB) CEO Mark Zuckerberg is scared.
It would be a mistake to compare the value of Bitcoin to the future of the underlying blockchain technology. Bitcoin is a bet on distrust of government, whatever government you happen to live under. Blockchain is a bet on a new way of doing business, all kinds of business, including the government’s business.
I recently suggested that a political candidate support blockchain as an answer to local corruption, writing it would create a form of “blind bidding” for government contracts. By automating economic processes, blockchain can transform all types of businesses, retiring more bankers, brokers and bureaucrats than Uber will cab drivers, and in less time.
But the present frenzy, and it is a frenzy, has nothing to do with that. There are just a lot of people who think Bitcoin will protect them from Trump, or their local equivalent, better than any other asset. They’re willing to bet with each other on the degree to which this may be so, but all guesses are wrong.
That is because the supply of Bitcoin is not limited, as they seem to believe. It’s unlimited. Don’t believe me? Just wait until the next fork in the chain.
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. At this writing he owned shares of FB. To follow the value of crypto currencies bookmark https://coinmarketcap.com/.