Bitcoin speculation bubble: hands off!

The Bitcoin bubble will burst like any other at some point – and anyway, Bitcoins are hardly useful as a means of payment.

Even as a coin, the Bitcoin is not money, but only a piece of metal Photo: dpa

Shouldn’t one perhaps buy Bitcoins after all! Even small investors are now asking themselves this question since the price has gone through the roof. On Sunday, one Bitcoin cost over 20,000 dollars; on Monday, it was still 18,851 dollars. Since the beginning of the year, the value of a single Bitcoin has increased by 2,266 percent. There has never been anything like it.

As the name Bitcoin implies, it is supposed to be digital money. In 2008, it was invented by an anonymous person who adopted the pseudonym Satoshi Nakamoto. It has not yet been possible to clarify who is behind it.

Bitcoins promise a brave new world: fans rave that it is a "democratic currency" that would belong only to its users. No longer would the state or the banks control the money – but citizens with equal rights at their computers.

Bitcoins are in fact "mined" by computers solving complicated algorithms. The first Bitcoins could still be produced at home on normal computers, but now the computing tasks are so difficult that huge computers and equally huge amounts of energy are required.

Bitcoins are not money

About 16 million Bitcoins have been created so far, and the software is designed to create a maximum of 21 million Bitcoins. Bitcoin fans believe this would make their digital currency more secure. In fact, it follows from this absolute cap that Bitcoins are not money at all.

Part of the nature of money is that it can adjust to demand and expand as needed. When the economy grows, the amount of money in circulation also increases. That’s why the price of money never rises, as bitcoins are doing now. You haven’t heard of the euro suddenly being worth $20,000 apiece.

The Bitcoin community makes a typical thinking error: they believe that money is just a means of payment. But real money is much more. It finances growth by extending credit. But Bitcoin fetishists have never thought about the connection between debt and money.

Gigantic waves of data

But even as a means of payment, Bitcoin ironically doesn’t work: transactions are too slow and too expensive. Every single transfer gobbles up as much energy as eight U.S. households consume in a day.

This energy expenditure is necessary because Bitcoins operate with blockchain technology. Since there is no state and no central bank, security can only be guaranteed by storing all booking transactions forever – and doing so decentrally on many computers. Only these many copies ensure that the system is forgery-proof. The disadvantage: Every single transfer triggers a gigantic data wave that eats up a lot of energy and storage space.

Objectively, Bitcoins have no value. Even as a means of payment, they are only of limited use. Why are investors nevertheless willing to pay $20,000 for a virtual coin that only exists on various computers?

Self-fulfilling prophecy

As moronic as it may seem from the outside: For the individual speculator, it can be rational to follow the herd. If all investors believe that Bitcoin prices will rise and therefore buy the digital currency – then the prices will automatically increase. A prophecy fulfills itself.

Until now, however, it was quite tedious to speculate with Bitcoins because you actually had to purchase the digital coins. But Bitcoin investors are now rid of this burden as well: the U.S. regulators recently approved Bitcoin derivatives. So now you can place bets on the bitcoin price without still having to own the digital currency. Since then, the Bitcoin craze has reached the meta stage: virtual speculation can be made on a virtual currency. Promptly, the Bitcoin price went through the roof.

Like every financial bubble, the Bitcoin hype will burst; the only question is when. The losers will then be those who came last. So: don’t buy any Bitcoins!

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