Bitcoin is here, better get used to it
The Punt likes to think of itself as being vigilant against fads. Nevertheless, continuing to dismiss Bitcoin – the online crypto-currency that has fluctuated wildly over the past six weeks – is starting to feel a little old. The free market may not always be right. But it is currently telling us that investors are interested.
The 'currency', which was created in 2009 and is based on a defined number of encrypted computer code 'units', has been on a fiscal roller coaster ride for some time. In October, one Bitcoin unit traded for €80. Earlier this week, this rose to €650 before falling back to €400, probably after significant profit-taking by geeks who purchased €5 worth two years ago and cashed in for over €10,000.
As we know, governments and central banks typically take a violent dislike to mechanisms with potential to replace established, controlled currencies. But some may be softening their line. The chairman of the US Federal Reserve, Ben Bernanke, right, this week said that virtual currencies "may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system". Almost immediately, the price of Bitcoin soared, reportedly on interest from Chinese investors.
The Punt understands people won't invest in Bitcoin because they don't know what it is. However, we have observed that economists who dismiss Bitcoin also don't know what it is. Bitcoin is entering its fifth year. At some point, armchair economists may have to swallow their pride and admit it is there.