Bitcoin – five years into a Revolution?

March 24, 2014

Bitcoin (2009): Bitcoin was launched in 2009 following a paper that was published in 2008, on, by Satoshi Nakamoto. How has it met its objectives over the past five years and how do we expect it to perform going forward?

We have seen the value of a single bitcoin climb from 1,309.03 BTC  to the $, or .07639 cents each in October 2009 to a peak of $1024 on December 2nd last year. The currency has, over that period, shown considerable volatility. The arrival of Bitcoin, or at least a reliable form of electronic cash had been predicted by economist Milton Friedman (1912-2006):

“I think the internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing but that will soon e developed, is a reliable e-cash.”

The level of returns on Bitcoin over the past five years has turned many early adapters into millionaires although lately there have been accusations that we are either in a bubble or a ponzi scheme. Many of these accusations have come from journalists and economists and frankly, many of the tools used to evaluate Bitcoin have been ridiculously inappropriate, and indeed many of the opinions given have been, to put it mildly, ill informed to the point of ignorance. As a rough rule of thumb, the main employers for economists are universities and the majority are not asked to state their opinions outside of that arena. Economists that wish to be paid for expressing their opinions must offer the opinions that the state and the media, that employs them, requires. Bitcoin has the potential to cost governments an enormous amount of money as no country, other than Australia, has offered a credible taxation position for cryptocurrency to date. Indeed Cyprus and Denmark are just two countries that have issued warnings against the cryptocurrency with Denmark, last week, comparing investments in Bitcoin to buying coloured glass beads.

Today we see Bitcoin ATMs becoming more widespread in both their level of saturation as well as their use. There are more and more businesses making themselves Bitcoin compliant in order to cash in on sales opportunities, and the interest shown by the opinion setters such as The Financial Times, The Economist and Forbes has resulted in a large percentage of the World’s investment funds including, at least, a small portfolio of cryptocurrencies. 2013 has brought us great market uncertainty and this can be seen by the rise in the price of gold. Today, March 2014, more investors are choosing to invest their funds in higher risk complex derivatives and debts than were choosing this option at the height of the property bubble in July 2007. Some are seeing this as evidence of another potential bubble. Where as others are citing this as evidence of long awaited market normalisation. When there is market uncertainty investments tend to flood into Gilts, Cash and Gold. I would suggest that the markets are not as confident now as they were a few months ago, and this has affected Bitcoin. In late 2013, many investors came on board lured by the growth in price. Perhaps we are now seeing Bitcoin price stabilisation, and we must, therefore, await the return of confidence to equity investments; a growth in confidence will move unit fund managers to diversify from cash and gilts into more complex, and therefore complete, portfolios and this will inevitably benefit Bitcoin. Bitcoin is five years old and when we look at how far it has come we can be confident but we must also ensure that we take a long term view of its future. It is only through education and promotion that we will bring more people into the network and it is only through network growth we will finally achieve price stability.

Bitcoin is five years old though: looking back, hasn’t it done well?

Last modified (UTC): April 20, 2014 18:34

PJ Delaney @P.J. Delaney@delboyir

Masters in Public Administration, Bachelors in Mgt., I live in Ireland, I have a bit of a background in Economics and lots of opinions on everything else.