Bitcoin’s rise shows investors’ appetite for alternative investments but is now unsustainable
There are people out there who bought Bitcoins when it traded well below a hundred dollars. Some of them bought the digital currency on a lark, others bought it because they considered themselves early adopters. And some people even bought the digital cryptocurrency as an investment. Most who did the last mentioned, that is buying Bitcoin as an investment mostly sold out once the cryptocurrency shot above a thousand dollars. No-one expected Bitcoin to shoot upwards to be worth $17,000 each. This is remarkable for an asset ostensibly backed by nothing more than 'mining operations’ which are nothing more than giant farms of computer servers. But as the value has shot up, Bitcoin mining operations now are believed to consume more electricity than some small European countries. But unlike national currencies backed by sovereign governments, Bitcoin is backed by no person or government.
The rise of Bitcoin is being compared by some to the famous South Sea Bubble. In the early eighteenth century, Britain which was almost bankrupt after constant wars in Continental Europe and John Blunt, the founder and director of the ironically named Hollow Sword Blade company took advantage of this to establish a trading company which would trade in the Southern Atlantic and latin American territories. This was done to replicate the success of the East India Company and by giving ordinary private individuals the right to buy and sell shares they could all profit from the new trade. But trade to these areas was limited by war, in fact Britain had no territory in the south and trading was non-existent. However, the South Sea company’s shares were rocking on the stock exchanges as the company bribed and incentivised politicians and the media to boost share prices even roping in the new Hanoverian royalty in the United Kingdom. The share increased in value over ten times in a couple of years before the public figured out the con and values collapsed. Them there was the huge boom in tulips in Holland and in more recent years Emus, as a source of meat in India. Even though people have a limited short term memory, the Emu bubble is a reminder of how investment bubbles can occur and why people should not lose sight of reality when investing. When Emu values went up, the only way the investment on a bird would make sense would be if the meat cost over a thousand rupees a kilo, 20 times the price of chicken meat. Which frankly is what Emu meat tasted like.
The huge plus of Bitcoin that people believe is anonymity but the reality is that actually Bitcoin is easier for financial investigative agencies to track than a dollar note. True, Bitcoin is useful as an asset for people who travel and need to exchange money, but something tells us that the Bitcoin rush has weak foundations.