The digital currency Bitcoin made headlines this week as its price soared to some $17,000, having started the year at $1,000. Fine if you own a few, baffling for those who do not. It has some real value for making micro-payments - those payments that are so small that the normal channels are far too costly to use. For example, if I bought a book from someone in France who was not a commercial seller, the price might be €3 but it would cost at least €30 to make a bank payment and there is no alternative other than mailing the cash and hoping the postman won't spot it. A payment by Bitcoin would cost nothing extra.
As the number of times I make such payments is very small (the last time was having to reimburse a French hospital a few years ago when I fell suddenly and briefly ill on holiday, but it wasn't worth claiming on insurance) I have no use for Bitcoin but continue to be baffled by why anybody would buy into it at the current price. It has no legitimate backing whatsoever, there is no protection from fraud, nothing to stop the mysterious and anonymous inventor from making a change that instantly devalues the currency and above all, it is not legal tender anywhere. It cannot be used to pay debts unless the other party agrees, whereas a legal currency must be accepted. So the only way to unload your stash is to find someone else who will take them. The moment all potential buyers shrink back, if only for a few hours of trading, the value could plummet towards zero.
Plenty of sober voices have warned of the perils of speculating in such a weakly bound commodity. History is rife with examples of people rushing in to buy objects of no discernable value with the certainty that, come what may, they will be able to sell out and make a profit. From the tulip mania in 17c Holland to the South Sea Bubble of 1720, from the Railway Mania in the 1840s to the Wall Street Crash and onto the Dotcom boom, "investors" in such cases always fail to grasp that what they are buying is only valuable as long as others are also buying and there is nothing whatsoever that says this will continue to be the case. And equally "analysts" are always drawing graphs that show lines going upwards and therefore projecting that they must continue to go upwards.
Bitcoin may founder or it may flourish - it is a great boon to criminals who can make anonymous payments with it - but what is certain is that a lot of people will get their fingers burned, and when they sit around on street corners, with a few miserable coins in a hat and placards reading "Victim of Bitcoin hype", the rest of us will stroll on, wry smiles playing about our lips.
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