Prices on bitcoin (and other cryptocurrencies suffered a sharp reversal on Dec. 7, with more analysts predicting the beginning of the end for the market. It is not that but it could be, in Winston Churchill’s words, “the end of the beginning.”
As I have written many times, bitcoin’s bug is also its feature — a strict limit on trading built into its blockchain. Hoarding by buyers, who saw bitcoin prices hit $18,328 early on Thursday finally brought in the bears, who beat it down below $14,400 by midnight before it recovered the next morning to $15,645.
Who knows what the price will be by the time you read this. The action is even faster than the internet.
So, you ask, what’s going on?
The Wall Street Put
Bitcoin has become a craze akin to Pokemon Go last year, and Coinbase (a cryptocurrency trading app) briefly surpassed YouTube in Apple’s App Store. At its present rate of growth, bitcoin mining could be consuming more electricity than the whole U.S. by 2019, an unsustainable growth curve. But mining is the only way for the supply of bitcoin to grow.
The problem for bitcoin bears is that just a few hundred investors can corner the market, and their attitude toward the rest of us is defiantly negative. Thus, the “Wall Street Put.”
Chicago’s big futures exchanges recently began offering bitcoin futures this week, and while the Futures Industry Association doesn’t like it, the move means that limits on bitcoin trading are about to disappear.
What that means is true price discovery. A market now peopled by Uber drivers and house cleaners is about to get some market discipline. Bears like former Federal Reserve Board Chair Alan Greenspan, who has compared bitcoin to the Continental Currency of the Revolutionary War, will now be able to put that view into the market.
The Politics of Crime
Bitcoin is inherently political, its advocates insisting that “fiat currency” like the U.S. dollar is bogus because its supply can be manipulated by governments, and governments should never be trusted. The problem with distrusting cops is that it lets criminals run amuck.
Crime syndicates are all over bitcoin, running hashes that steal bitcoin from virtual vaults, creating phony bitcoin trading sites to steal “real” money and making governments who crack down on trading rich.
The near-term problem is that governments which hate bitcoin can see their own bitcoin markets explode. Thanks to trading crackdowns, a bitcoin is now worth over $17,000 in Korea. Thanks to the government’s collapse it’s now worth even more in Zimbabwe.
The Good News
The bitcoin bubble combines the power of the mobile internet, the security of blockchain and the universal desire for riches into a toxic brew that is now worth as much as many major banks. It’s a global market without a global regulatory structure.
Bitcoin offers an opportunity to create such a structure. The internet has made the world one big market. Blockchain has automated trust processes that used to take layers of bureaucracy. People around the world are all reaching for the same brass ring.
Fans of bitcoin love to say governments can’t muzzle it and they are right about that. The only way to muzzle a global market craze is with a global market.
Thanks to the Chicago Board Options Exchange and Chicago Board of Trade, we’re about to get one. We will see if the bulls can beat that.
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. As of this writing, he owned no shares in companies mentioned in this story. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com.