Is Bitcoin a Bubble?
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Is Bitcoin a Bubble?

Bitcoins today offer an individual the possibility of becoming very, very rich by risking it all (including borrowing huge sums from friends family and shysters). By so doing, one could -- possibly – join the ranks in a matter of months of the very wealthy in America. One could also loose it all, but that is the risk that may or may not make sense, depending on tolerance for risk, willingness to fall further than ever before, and the number of years one still has to live.

Investing in Bitcoins is very sexy. It takes both guts and vision. But, by now, it is not ahead of the curve. More and more people have joined the ranks of those who own some. At over $11,000 a coin, it is a rich, but perhaps still a good bet.

In many ways, bitcoins are brilliant additions to the investment world, viewed by many as the greatest disruptive force the industry has ever seen. While there are still lots of bugs to get out of the system - including an easy, inexpensive and safe way to purchase them, improved liquidity and trading on Wall Street - bitcoins just make so much sense in today’s digital world. It is, in fact, hard to imagine that a decade from now bitcoins will not be the preferred transactional coin for both Wall Street and Main Street.

But even more compelling is their ability to provide anonymity and independence to and for the investor. Long gone are bearer municipal and other bonds, not to speak of Swiss accounts, which provided privacy and freedom for investors. Bitcoins, today, bring all that back and in spades, reintroducing confidentiality and freedom from undue oversight.

But the risk, a big risk, is still there today. Reminiscent of Tulip Mania in 17th Century Holland, bitcoins could be a short-term and highly speculative distraction that will fail and fail big in the next few months or years. Its volatility, lack of liquidity, and wild swings already suggest great caution. Like tulip mania, the first speculative bubble on record, bitcoins could go up in flames before they have time to get the bugs out.

What is surely clear, however, bitcoins or something like them will take root in the ever more digital world of the 21st Century.

Daniel Socolow
Daniel Socolow: President, Socolow Group. Former Director of the MacArthur Fellows Program, President of the American University of Paris, Vice President of Spelman College. BA, MA, Ph.D.

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