We’ve already broken down Bitcoin’s inevitable fate, and broken out why it’s been steadily rising in value over the course of the year, but to this point, it’s still been something for “libertarian” crypto-nerds to geek out about and insist someday, we’ll pay for everything in Bitcoins, which we won’t. And to help that process along, Bank of America has just endorsed Bitcoins as a market you should get into.
Bank of America actually has an interesting and fair-minded view of Bitcoin (link goes directly to a PDF) that offers a good summary of its strengths and weaknesses. The problem is really, as Bank of America notes, that Bitcoin is likely in a bubble.
A quick explanation: Bitcoin is an experiment created by a Japanese software engineer to probe the possibilities of digital currency. Essentially a Bitcoin has no intrinsic value; it’s not backed by a government, and you can’t make something out of it. Bitcoin is not unlike Canadian Tire Money or phone minutes; it has value because a group has agreed it has value. This is problematic not least because, currently, authorities view Bitcoins and the $1.53 you have left on that gift card as essentially the same thing.
This is why it suddenly lost a double-digit percentage of value when China decided it didn’t like currency it couldn’t control. And it’s really only a matter of time before another government decides to step in, which will likely be in about five to six months, when the Internet stops talking about it and/or somebody figures out how to forge Bitcoins, and the guy who plowed his retirement savings into them loses half his portfolio.
That, ironically, is more likely because Bank of America gave a thumbs-up to it as rising in value to $1300 a coin. A lot of the Bitcoin community has forgotten that Bitcoin is an experiment, not a stable currency, and as it grows, it’s going to uncover new problems. Bitcoin is interesting to watch unfold… but so are horse races, and it’s not advisable to put money in those, either.
(Image courtesy of antanacoins on Flickr)