Many people have started to worry that bitcoin is in a serious bubble. The cryptocurrency has been massaging $20,000. It started last year at less than $1,000.
Of course, its new high could change overnight into something much lower (such things have happened before). Despite the currency’s astounding higher highs, speculation in it begets speculation until the price is thoroughly divorced from any possible underlying reality.
Goldman Sachs is cautiously positive about bitcoin and other cryptocurrencies. But others are less sanguine. Nobel laureate Joseph Stiglitz has reportedly said it should be “outlawed,” while fellow laureate Jean Tirole has called it a “pure bubble.” JPMorgan Chase CEO Jamie Dimon has in the past reportedly called the currency a “fraud” and “not a real thing” (though he’s also reportedly moderated his views as of late).
Robert Shiller, economics professor at Yale University, says the currency’s bubble qualities have echoes of the Great Depression.
But those gloomy outlooks are not altogether convincing. Tulipomania was created in part by a futures market that climbed along with tulip prices themselves. It was not simply propelled by a “bubble.”
The reality of bubbles is that they are not just created by naked higher prices. Such trends are usually linked to some sort of other factor, even government involvement.
The Great Depression, for instance, was caused in part by central banking (the Federal Reserve System was established in the U.S. in 1913). Without some similar external influence, bubbles usually cannot reach great heights.
Bitcoin is either being boosted by something from the outside or, hard as it is to believe, it is rising naturally.
Some observers believe bitcoin and similar cryptocurrencies may eventually find a niche, though these people are cautious about excessive inflation and a lack of central bank influence.
Possibly the most important argument for a bubble is that bitcoin was conceived of as currency but cannot be used that way in its current state. It simply moves up and down too fast. One day, it’s worth a certain amount and the next day it’s worth hundreds of dollars more or less. At some point, it will have to stabilize if it’s ever to become a regular currency.