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There is small poetry in the fact that this week, when bitcoin burst through the $1,000 mark after quintupling in a month—proving beyond reasonable doubt that it is a bubble—the Netherlands, home of the very first bubble, had its debt downgraded.
Adrian Chen, a journalist who played a small and inadvertent part in kickstarting the bitcoin bubble two years ago, has blamed the media for blowing ever more air into it: “Tech blogs breathlessly track the price of bitcoin. Each new business that accepts bitcoin is heralded with the fanfare of a despot opening his country’s borders to a new, previously outlawed luxury.” In fact, notes economist Tyler Cowen, the past month’s explosion may have more to do with its growing use by wealthy Chinese to circumvent China’s strict capital controls. And if China’s getting in on it, speculators elsewhere are bound to conclude that the price of bitcoin can only keep rising.
When will the music stop? And more interestingly, how many more times will it start again? The ”second great bitcoin crash” has already happened, a fall from around $270 to $60 in April. Today that seems like small change. Will the third crash be the last? Dutch tulips are still bought and sold nearly four centuries after the tulip bubble, but will anyone be trading bitcoin a year from now?
In a wider sense, though, none of these questions matters. Bitcoin is to digital currencies as Napster was to music, argues The Economist—an experiment whose ultimate failure will pave the way for others to transform the industry. For now, suggests Chen, bitcoin is most interesting as a parable of human greed—and the crash, when it comes, “is going to be great.” Unless, of course, you’re holding a lot of bitcoin yourself.—Gideon Lichfield
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