Cryptocurrencies: bitcoin and the new goldrush
After almost a decade in existence, Bitcoin burst on to the public stage in 2017. The online crypto-currency saw its market price soar, discussion of Bitcoin hit the front pages of the financial press and it was listed on major financial exchanges. What was once the obscure hobby of anarcho-capitalists and technologists appeared to be gain mainstream credibility; what was once the currency of the ‘dark web’ was being spoken of as a new financial asset class that even the stuffiest investment banks would have to pay attention to.
Bitcoin’s price has been very unstable, hitting a then-record high of record of $19,850 in December 2017 before crashing below half that value a few months later. However, for many, Bitcoin was more than just a get-rich-quick scheme or a new investment type. The idea of the currency seemed to have traction in a world suspicious of banks and governments following the financial crisis.
According to enthusiasts, Bitcoin and other crypto currencies like it offered a way to take currency out of the hands of governments. Bitcoin supporters argued that our current monetary system allows governments to ‘debase’ our currency through inflation – an argument long used by US libertarians in favour of returning to gold-backed money. By being limited in supply, Bitcoin is immune to this. Max Kaiser, an economics commentator for Russian TV channel RT, went so far as to claim that ‘Bitcoin is the currency of resistance…If Satoshi [the creator of Bitcoin] had released Bitcoin 10 years earlier, 9/11 would never have happened.’
Not all agreed, however. Alongside calling Bitcoin’s extraordinary rise in value an unsustainable bubble, other sceptics questioned the merits of having a currency ‘outside the hands of the government’. Our current monetary system allows governments more leeway to manage our economies, through measures such as lowering interest rates or quantitative easing. Some commentators argue that a wider adoption of Bitcoin adoption would mean that instead of a government exerting control over monetary policy, the power would reside with a group of early Bitcoin adopters. Would that really be preferable, if it were even possible?
For all the column inches devoted to it, is Bitcoin really all that important? Are proponents of Bitcoin right to claim that crypto-currencies are the future? What are the pros and cons of having a currency free from government oversight? Is Bitcoin a threat to the current financial world order or an unstable asset that will always be prone to short-term price bubbles?