The Case that Bitcoin Is a Bubble (economist.com)

An anonymous reader shares an excerpt from the Economist: It seems that every day, Bitcoin seems to hit a new high. But the reported price can move up and down by $1,000 or so within a few hours. This might have made it a great investment for those who got in at the right price and are nimble enough to get out in time. But it doesn't make it a useful means of exchange (Editor's note: the link could be paywalled; alternative source). When the price is rising fast, those who use bitcoin will be reluctant to part with it; when the price falls, those who sell goods will be reluctant to accept it.

Comments

Re:News For Bitcoin..

[Freischutz]

Stuff that matters?

Yes, if only to teach the less savvy not to get into a market at the peak of a bubble.

Re:Makes stable pricing impossible.

[PopeRatzo]

If I hold one bitcoin, and someone starts messing with derivatives, I still have one bitcoin. What if I just simply choose to ignore the derivatives ?

What happens with derivatives affects the underlying value of instrument from which it is derived.

Remember the economic crash in 2007-2008? Look what the trading of derivatives in mortgages did to the value of a house. Yes, if you owned a house before the crash, you still owned a house after the crash. It was just worth a hell of a lot less.

Re:Bitcoin are not tulips

[Rei]

Tulips are not durable, not scarce, not programmable, not fungible, not verifiable, not divisible, and hard to transfer. But tell me more about your analogy...

The tulip market was by design an annual market, with traders fighting over the rarest cultivars on a seasonal cycle.

Rare tulips were indeed scarce. Each year, new cultivars of tulips were developed and only available in small numbers, while the demand for the rarest tulips was huge. The rarest types of tulip were rare because of a virus (tulip breaking virus) that was only transferred from an infected plant to its buds; since only a few buds formed per year, only a few new tulips of that variety could be formed per year. This guaranteed an enforced scarcity.

Tulips of the same cultivar were fungible, for whatever that's worth.

Tulips were verifiable in that they were purchased in formalized markets, even futures markets, with enforceable contracts (although short selling was made illegal).

I'm not sure what the point of tulips being divisible is. Neither are yen, but people seem to have no problem using them.

Most importantly, tulips were actually in demand in and of themselves . There was a lull in the Thirty Years War, and tulips were a highly in demand luxury item at wealthy estates. What's the value of bitcoin in and of itself? What's that? An alternative payment system to credit cards? Yeah, how is that going for you? Backwards, is how - the few places that had previously started experimenting with accepting bitcoin as payment are one by one backing out of it. Even if you ignore the volatility, the overhead in bitcoin transaction processing makes it stupid as an alternative. And it always runs the risk of governments cracking down on it due to the one thing that people actually value bitcoin for in and of itself: illegal purchases and money laundering. Don't think governments can crack down on it in a way that utterly crashes its value? Yeah, good luck with that notion.

Bitcoin is currently in the "greater fool" investment mode. We know how these things end.