Google promptly displays 32milion search results when the word Bitcoin is submitted. As a direct opposite my Microsoft Word spellchecker does not even recognise the word yet. Until a few weeks ago I had not even hear of the term myself, so I guess I am in the Microsoft camp. None the less, I would like to know what all the fuss is about and to get to the bottom of what exactly a Bitcoin is and why it’s sudden rise to fame.
As I understand it, it is an online currency that can be used to pay for certain services/products as a few businesses accept them as valid form of payment. Places to accept Bitcoins are sure to increase in time as this payment method finds traction with new fans.
Bitcoins are not influenced by governments or central banks and they are limited in their number. Importantly, no one can find out how many of these illustrious coins you own and it so protects you from confiscation in the future. You get Bitcoins by buying them or you can earn them through selling your services or products.
So why the sudden rise to fame? This is the worrying bit: In essence people are worried that the massive money printing being undertaken by most major economies will cause their currency wealth to depreciate. At this moment, few currencies are safe and as Japan demonstrated on the 4th of April 2013 by declaring an all-out currency war, it will be very difficult to pre-empt moves by these major economies.
The spike in the Graph shows the increase in the Bitcoin Google search activity during the week following the Japanese announcement.
Up to now, you could attempt to protect yourself from the devaluation of your wealth by buying real assets while your currency still has some value: Assets like, Property, Shares, Commodities and the massive benefactor of this global worry – Gold. The thinking goes that Gold has always retained its value and that in the future should the predicted bad-news story play out, those owning Gold would at least have some of their wealth protected. The problem is that the Gold price has recently come under pressure and investors are looking for alternatives. There are all kinds of conspiracy theories being put forward as explanation for the stumble in the Gold price, many of them pointing to Central Bank intervention.
That brings us back to the Bitcoin. The price of a Bitcoin can’t be manipulated by the powers that be, hence their rise to fame.
What is concerning, is the fact that people are losing faith in the financial system as we’ve come to know it,we are very adaptable and will find solutions to problems as they occur. It will also be interesting to see the effects this type of asset might have on the price of Gold. Maybe Gold is no longer the ultimate store of wealth, but just an option.
For now, I don’t own any Bitcoins yet…