The fact that bitcoin is becoming more popular — with an ATM at South Station and even spinoff startups — is not a sign that it is a legitimate or stable currency.
Nine months ago, I told you you'd be hearing a lot more about bitcoin. But I declined to take a position on the newfangled form of Internet currency, which is beloved by libertarians because it's not backed or controlled by any government. Now I'm taking a position: Get into bitcoin only if you like playing with fire and have money to burn. Know that getting into bitcoin is like gambling — or speculating, or prospecting. And know that bitcoin will crash. Maybe not this year. Or even next year. But it will crash, eventually. And then it will never come back.
That's not to say that whoever invented bitcoin isn't a genius. This mysterious, unstable pseudo-currency has lots of interesting benefits, such as no-cost microtransactions and the ability to transact across international lines. As an exercise in computer science, bitcoin is a beauty. But that doesn't make it a legitimate currency.
This is how it will pan out: As bitcoin becomes more known to people, the value will rise dramatically as investors see it as a hedge against economic uncertainty and a chance to get in on the ground floor of an exciting new market. And the value will rise because there is a finite number of bitcoins. That value can't be manipulated or controlled by any entity (i.e. the Fed), so there's no way to print more bitcoins to get people to spend more bitcoins, as our government does with the dollar. But while proponents of bitcoin see the inability to adjust the spigot as a benefit, it's also a fatal flaw. The lack of any oversight means that there's no way to prevent people from hoarding their bitcoins. Bitcoins will continue to rise in value as people hoard them, until one day somebody wants to cash in. And on that day, everyone will want to cash out at once. And that is when the system will collapse.
Some banks are starting to get interested in bitcoin. But they're not interested in it because it's legitimate. They're interested in making a quick buck off people like you and me. Same with the ATM companies, the so-called bitcoin entrepreneurs who land totally uncritical interviews at a certain broadsheet. So say it with me now: the popularity of something doesn't equate to its legitimacy or its merit. Bitcoin isn't a currency; it's a commodity.
And it's doomed to fail.
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