If you can keep the supply of any commodity down, then scare some people around it, you can make anything valuable. Even if it’s completely imaginary.
That’s the story of the latest bitcoin boom, which had the world’s most famous (or infamous) cryptocurrency trading at over $13,000 on June 26. It had settled down to under $12,000 by the next day.
This means the bitcoin bulls are back, baby, now with predictions its price will soon hit $50,000.
Blame Facebook’s Libra Cyrptocurrency
Blame Facebook (NASDAQ:FB). More precisely blame its Libra white paper, filled with terms like blockchain and cryptocurrency that make you swoon.
Never mind that Libra has little in common with blockchain, and nothing in common with bitcoin.
It’s a so-called “stablecoin,” a placeholder like the JPMorgan Chase (NYSE:JPM) JPM Coin. Libra is a low-cost transaction processing system, one that could be valuable in places like Africa and South America.
Bitcoin remains what it has always been — a speculative asset class.
It’s designed so that only 21 million will ever exist. In practice, fewer than 17 million answers to its puzzle have ever been “mined.” Millions of bitcoin have been lost in digital wallets. Millions more are in the hands of people who aren’t trading them.
The value of a bitcoin, like any commodity, a house or a share of stock, is the price paid for it at the last trade. If you’re in a $100,000 house and someone buys an identical house, down your street, for $500,000, you can claim the value of your house is now $500,000. That doesn’t mean everyone on your street is getting $500,000, or anything close to it.
But you can dream. That’s just what bitcoin bulls, who saw an asset trading at $20,000 at the end of 2017 fall to below $4,000 a year later, are doing. The fundamentals of this market haven’t changed.
The Legend of Tulip Trust
The legend of bitcoin is it was created by a Japanese mathematician named Satoshi Nakamoto. Recently Australian Craig Wright has stepped forward and claimed he’s Nakamoto.
He’s in court against another computer scientist, the late Dave Kleiman, over the issue of what happened to 1.1 million bitcoin the two were said to jointly own in something aptly named the Tulip Trust.
Meanwhile traders are using the small number of coins that do trade to squeeze the price higher. Any excuse is a good one. Did a currency exchange go down? Buy! Are the rewards for bitcoin mining about to be cut? Buy! Is the Securities and Exchange Commission even talking about bitcoin funds? Buy, buy, buy!
All of this is allowing small bitcoin traders to get burned while big BTC holders, called “whales,” get a chance to cash out.
Bitcoin boosters like Ohio representative Warren Davidson, who wants to exempt cryptocurrency from securities laws, are blasting regulators as “Third World” Luddites. He has a willing audience in SEC commissioner Hester Peirce, a lawyer and Trump appointee, who goes by the moniker “crypto mom.”
Bottom Line on Bitcoin in 2019
The latest bitcoin boom would all be very funny if it weren’t for small traders causing themselves real financial pain, while ideologues like Davidson and Peirce conflate license with liberty and hold real power.
Bitcoin remains a small market. Its value is less than 40% of Facebook, and less than 60% of JPMorgan Chase. But blockchain may be different, which is why Facebook and JPMorgan Chase are experimenting with it.
Turning value into digital ink, so that bits truly represent money, is the Holy Grail of blockchain. A whole bunch of people are still chasing after it, hopping about the financial page and clacking their coconuts.
The second bitcoin boom says they’re being taken seriously.
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 at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in JPM. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com.
