17 Dec 2013 / Forbes – LONDON – Christmas came early for the Winklevii this year. Tyler and Cameron Winklevoss, the twin brothers who famously sued Facebook founder Mark Zuckerberg, own about 1% of the roughly 12 million bitcoins in circulation. Though its value has fluctuated considerably and continues to do so, the digital currency recently hit a high of $1,240, up from $13 a year ago – a more than 9000% increase.
Not everyone is sold on bitcoins as an investment. Detractors argue that bitcoins have little or no real-world utility outside transactions on online black markets. Earlier this month, former Dutch central bank president Nout Wellink compared rising bitcoin exchange rates to the Dutch tulip craze of the 17th century, during which the value of certain tulip bulbs rose to several multiples of workers’ annual wages before the price abruptly crashed. Indeed, most current bitcoin owners are believed to be speculators – estimates range from just over 50% to as high as 90% of the total. Sustained speculation may advance an upward price spiral, but bitcoin has already experienced several price readjustments in recent years. And it remains volatile: just three days after topping out over $1200 earlier this month, the currency plummeted to $650 after China banned its financial companies from handling bitcoin transactions, though the currency has rebounded somewhat since.
Even if bitcoin manages to survive a speculative bubble, capped circulation will ensure continued price rises, thereby promoting hoarding behavior that undermines bitcoin’s transactional utility. Evidence suggests that widespread ‘hoarding’ is not yet a major issue, given that the bitcoin cap is not expected to be reached until 2140. But it remains far from clear that a viable market based around bitcoins exists….. Read more
