In April 2013 I wrote a short essay entitled Why people who are usually sane are buying bitcoin. At that time the price of a bitcoin was hovering at around $100. Since I wrote that piece, bitcoin has had a roller-coaster ride that has not been for the faint-hearted. Some highlights include:
- A price surge (thanks to Chinese manic buying) to just over $1000, only to fall back to $400 before settling in the $500s for quite some time. Volatility continues, but nothing as violent as this one was (yet) .
- The largest bitcoin exchange, MtGox, turned out to be a poorly managed enterprise, if not downright fraudulent. It's collapse cost bitcoin investors millions.
- The Chinese government went from allowing the promotion of bitcoin on national media, to the prohibition of bitcoin trading for any banks in China, which caused the massive plunge from $1000 to $400.
- Prominent figures of the bitcoin community were charged with illegal activities, some of which resulted in resignations from the newly formed Bitcoin Foundation board.
- High-profile prosecution of the (in)famous Silk Road website owner and the confiscation by the US government of his large cache of bitcoins.
- An almost non-stop barrage of vilification by the main stream media of bitcoin and all things Bitcoin, particularly with reference to narcotics, money-laundering and other illicit dealings.
- Chronic uncertainty regarding state regulation of the bitcoin currency, particularly in the USA.
And yet, despite all this battering and bashing, bitcoin has simply chugged on, like the little train that could.
Well, first of all, disregarding the bitcoin cryptocurrency itself, it has become clear that the Bitcoin protocol as created by Satoshi Nakamoto, is a robust protocol with vast potential for many other applications other than a cryptocurrency. Consequently Bitcoin has seen substantial (and growing) investment from VC companies ever vigilant to catch a ride on the next big thing. Like candy floss around a stick, more and more clever minds (technical) and greedy hearts (capital) have gathered around the Bitcoin stick. It is now clear that the Bitcoin protocol is at the heart of a bifurcation that is fundamentally changing the way we think about money, banking, contracts and even personal freedom.
Second, I would argue that during the course of the year since last April it has become more clear to more people around the globe that the world economy indeed is in deep trouble, despite the economic “growth and recovery” propaganda pumped out daily by central banks and governments. The Sword of Damocles hanging over fiat currencies’ heads is plain for all to see. It is becoming harder and harder to pull the wool over citizens’ eyes.
So you have bitcoin surviving all measure of scandal and assault as well as seeing an increase in its credibility precisely because it has survived AND endorsed by Wall Street capital on the one hand, and on the other hand you have the growing realisation by more and more people that the probability of a worldwide economic meltdown is high and growing higher every day.
In short: faith in bitcoin has increased over the last year while faith in the world economy and fiat currencies has diminished.
Therefore, it seems to me at this point in the parade, where the custodians of our economic system appear to have gone insane, that, unlike it may have seemed to Joe Smith a year ago, having some bitcoin in your portfolio is one of the more sane things you can do to increase your chances of survival when that sword comes down.