IN this column on Dec. 28, 2013 entitled “Bitcoin Frenzy,” I concluded that “Governments must override the (e-currency) system, if only to protect the public from being engulfed into a monetary black hole.” At that time, bitcoin value had passed $1,000, pushing its capitalization to over $11 billion.
With some of the biggest companies (such as Amazon, Apple’s App Store, Dell, Microsoft, K Mart, Pay Pal and early converts Virgin Galactic and WordPress) accepting bitcoins for payments, there seems to be no stopping the currency becoming universally acceptable.
China boldly overrode the use of bitcoin by shutting down bitcoin exchanges and cracking down on initial coin offerings in September, at the time when the world’s second largest economy accounted for over 90 percent of global trading. Instead of shaking the e-currency system, China’s clampdown ignited market interest elsewhere that has led to the surge in value today.
Pan Gongsheng, deputy governor of the People’s Bank of China, still believes that it made the right decision. He cites Keynes: “The market can remain irrational longer than you can remain solvent.” He said that China will simply sit by the riverbank and see bitcoin’s body pass by one day.
On the other hand, the United States had taken a hands-off policy on bitcoins believing that it has little impact on the established monetary system. But then Keith Noreika of the U.S. Treasury Department, in a speech before bankers, expressed his openness to the idea of a new breed of banks might one day conduct business in bitcoin and other cryptocurrencies.
I remain skeptical about bitcoins. With its shrouded origin, its mysterious processes of “mining” and its lack of regulation, the digital currency simply cannot depend on the confidence of the marketplace or belief by investors.
The truth is that speculators are behind the unprecedented rise in the value of bitcoins. The present situation has been compared to the tulip mania of the 17th century and the dotcom bubble in the ‘90s. Just recently I saw the movie “Tulip Fever” that was set during the tulip mania, when the Dutch economy developed the futures market with contract prices for tulip bulbs reaching extraordinarily high levels only to collapse in February 1637. It seemed that the market succumbed to the vanity of tulips.
If cryptocurrency is to become “the way of life,” then it must be founded on a solid platform that is regulated by governments, if not a world body. I have always thought that the World Bank or the International Monetary Fund would take the lead, but these bodies have their own focus and problems. The United Nations General Assembly may as well agree to the establishment of the World Cryptocurrency Bank that should govern, regulate and promote a universally acceptable digital money.