18 Feb 2014 / CNN FORTUNE — In the last year, and with increasing intensity following the early December price spike that briefly put Bitcoin above $1,200, critics have sounded the alarm that the price is a bubble. Some, like Felix Salmon, have recognized the value of the cryptocurrency, but argued that it is simply overvalued, much like pre-2008 real estate.
Others haven’t stopped there, claiming that bitcoin is all bubble, at the center of which is little or no intrinsic value — something closer to a Dutch tulip mania than a real estate bubble. Those making the latter case have included Nobel Laureate Robert Shiller and former Federal Reserve Chairman Alan Greenspan.
It seems reasonable enough to be skeptical of a digital currency unbacked by any state or real-world goods. But bitcoin optimists argue that what “backs” bitcoin is the functionality of its frictionless, low-cost, decentralized payments system. As Circle CEO Jeremy Allaire put it at fact-finding hearings held by the New York Department of Financial Services in January, “The growth in the value of bitcoin is a put option on its adoption as a payments platform.”
MORE: Bitcoin’s no good, horrible, very bad few weeks
An anonymous viral e-mail circulating among bitcoin watchers and partisans lays out a few simple hypothetical usage and adoption scenarios, and their consequences for bitcoin’s price. If Amazon.com (AMZN) adopted bitcoin for all payments, its volume of $38 billion, divided by a supply of (at the time of the email’s writing) about 7 million bitcoin, would make each bitcoin worth $5,400. If $300 billion in international remittance was conducted in bitcoin, that volume alone would push the price to $42,000. Adding these, along with online poker and gas station transactions, would lead to a total transaction volume of $602 billion — and a bitcoin, even at today’s expanded supply of 12 million coins, worth $50,000….. Read more
