For some time now, the digital currency known as "bitcoins" has been ballooning in value thanks to a lot of speculation and the promise that the money will be finite. Currency 101 dictates that the more of something there is, the less value it has, a process known as inflation. This is why it would make sense to barter with something like a rare jewel versus sand on the beach. But a digital coin that is backed by nothing but a digital handshake? A bit too shaky for some.
This sentiment is likely why China's central bank has decided to ban other financial institutions in the country from accepting bitcoins. The move is seen as protecting the country's economy from exploitation via the unregulated currency. China is simply too big a nation to express such concern without a shockwave following suit. Bitcoins lost a great deal of value in hours that followed.
Great news if you want to buy Bitcoins: they’re now much cheaper. http://t.co/BQWPa1Ltme
— John Carney (@carney) December 7, 2013
In the United States, the coins are seen as a legitimate means of exchange. Which is perhaps why one man had no problem blowing $100,000 worth of bitcoins on a Tesla at a Lamborghini dealership. There is a growing list of businesses that are willing to sell items of varying value in exchange for the bitcoin. So if you happen to have a few, perhaps now might be the best time to cash in.
To the observant eye, this bitcoin madness feels a little too much like the dot.com bubble of the nineties. This feeling is not lost on former Federal Reserve chairman Alan Greenspan, who views the popular digital money as a bubble that will inevitably pop. “It has to have intrinsic value. You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven’t been able to do it. Maybe somebody else can.”
"Intrinsic value" is why we don't carry buckets of sand to the grocery store. It's takes both tangible and intangible factors to lend value to money of any kind. China's main financial institution has seen the writing on the wall. While it won't stop citizens from investing, they have been told to do so, "at their own risk".
If you're willing to take huge risks, now is the time to do so. Do so and get out, because many are betting it won't be long before the bubble bursts, millions are lost, and nobody will really be surprised.
Image: Wikimedia Commons