A Bit of a Laugh

Last year I watched with some bemusement as the price of bitcoin, the world's largest digital currency, rocketed upward. On December 8th, when it seemed to have hit a new and irresistible high, I warned that the way it was being sold was identical to many other great investment bubbles of the past and there was a very good chance of misery for latecomers to the market.

Just two weeks later and the price had fallen by 40%, and as usual the "experts" were talking about "corrections" and "relieving the pressure" and drawing their silly little graphs to prove that if you extend a line in one direction long enough then it goes over the edge of the paper. "Don't panic", they proclaimed "This is still the future and now that prices have come down it's a wonderful time to buy".

I lost interest in following the fortunes of the currency soon after (apart from writing this little fable to make the point that value is only what someone else will pay for something) only to take a fresh look when this story made it to the news. Oh dear, the price of a bitcoin, that was some $20,000 when I wrote my first bit piece is now about $4,500 and going down. Just think of all those people who cheerfully bought in when it was, say $12000 eighteen months ago, or when it had begun to decline from last December's peak, confident that things could only get better and reassured by the massed ranks of analysts. Hard not to smile broadly, isn't it?

The even funnier aspect is that history is not only repeating itself but those who should know most about it display the greatest ignorance. When the Wall Street crash began in November 1929 the "experts" of the day made all sorts of reassuring comments about "shaking out the lunatic fringe" and "the fundamentals are sound".  I am indebted to Bitcoinist.com for the following gem from John McAfee (a name famous in the IT world for his anti-virus and PC utility software many years ago).

“People have panicked. But there’s no **** need. We’re in a bear market. They suck, yes, and not like a hooker with no teeth,” he urged.“But I’m 73 and have seen this dozens of times in many markets. Bear markets are like Winter. It’s always followed by a glorious Spring.”

I am sure John has more experience with toothless hookers than I do (not difficult really, as I must confess to absolutely none at all in this department, there isn't much call for dentally-deficient ladies of easy virtue here in beautiful Ruislip) but leaving aside his thought-provoking metaphor and the fact that the only reason he is upset is that he now runs a trading business that makes money if digital currencies are doing well and so anything he says is suspect, let us focus on his "I have seen this dozens of times" theme. So what? The Depression of the 1930s lasted until the boom of wartime despite the sage remarks of those who, in 1929, assured the public that share prices could only go higher. There is no magic markets fairy who guarantees that what goes down must come up. If the world's central banks create a digital currency for general commercial use, another story being reported today, and make a micro-payments system widely and cheaply available to the public then Bitcoin and the like will be obsolete at once. No glorious Spring. Not even a few chilly days with blustery showers. Just oblivion, going the way of videotape, the telegram and the flintlock musket.

[Are there going to be any more articles making a pun of the word "Bit" in the title? Should we make this a series? Your readers will want to know: Ed]