Nearly
six months since Bitcoin reached the $1,000 mark for the first time, several commonly-espoused
myths surrounding the virtual currency have been shattered. In order, these
myths are that the price surrounding Bitcoin at the time was in some way
warranted, that Bitcoin provides its users with a safer means to undertake
financial transactions and finally, that Bitcoin is a decentralized currency.
Firstly,
the current price of around $500 illustrates that the Bitcoin price of the time
was a bubble. By comparison, the value of the Russian rouble has only fallen by
around 20% in the same period despite significant political instability
surrounding Russia and the Ukraine as well as suggested capital outflows from
Russia in the region of $150bn.[i] This conjures up the image
of people piling out of Bitcoin and heading for the safety of the Russian rouble
– not traditionally a safe-haven for anxious investors it must be said.
Secondly,
half a billion dollars’ worth of bitcoins going “missing” in late February of
this year draws a line under the claims made by some parties that your Bitcoin
wallet is any safer than the traditional version that resides in your pocket.
As we are all well aware, financial fraud is nothing new. But a precedent for
financial fraud on this scale in such a short period of time is difficult to
think of.
Finally,
it is worth addressing the myth that Bitcoin is decentralized. Bitcoin has now
been legislated for in several large economies. The United States recently made
it a property and thus subject to tax, Finland has decided it should be given
commodity status, while Sweden says it is an asset.[ii] What all of these actions
show is that governments will ultimately decide what Bitcoin becomes – and that
is the definition of being centralized.
In the defence of
Bitcoin
For
all the myth shattering, however, Bitcoin’s resilience in the face of so many
challenges is also worth considering. With over $6bn worth in circulation[iii], there are several
vested interests in keeping the bitcoin phenomenon alive. And the longer it
stays alive, the more credibility is given to it as a form of currency in its
own right. Credibility is the same tool that central banks themselves have
relied on to keep things ticking over for hundreds of years.
Almost
every time a central bank in a country makes a statement about Bitcoin (with
the exception of the Danish Central Bank who referred to Bitcoin as “beads of
glass”), it gives further credibility to the virtual currency. When the IRS
made moves to make Bitcoin taxable, it was a blow to the idealist camp who
think of Bitcoin as a currency in its own right but at least provided
recognition from a government entity that this is here and it’s likely to be
here for a long time.
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