Commentary: Bitcoin, the 12-year-old bubble that could eventually be worth nothing

In contrast to other assets like gold, Bitcoin is purely speculative. Its value is whatever markets say it is, says Willem H Buiter.

The logo of the Bitcoin digital currency is seen in a shop in Marseille, France, February 7, 2021. REUTERS/Eric Gaillard/File Photo

NEW YORK CITY: On Feb 8, Elon Musk’s electric car firm Tesla announced that it had invested US$1.5 billion of its cash reserves in Bitcoin back in January. The news helped to boost the cryptocurrency’s already skyrocketing price by a further 10 per cent, to a record high of more than US$44,000.

But, especially in Bitcoin’s case, what goes up can just as easily come crashing down.

READ: Bitcoin pulls back from brink of US$50,000

Bitcoin was invented in 2008 and began trading in 2009. In 2010, the value of a single Bitcoin rose from around eight-hundredths of a cent to eight cents. In April 2011, it traded at US$0.67, before subsequently climbing to US$327 by November 2015.

As recently as Mar 20 last year, Bitcoin traded at about US$6,200, but its price has since increased more than sevenfold.

Today, Bitcoin is a perfect, 12-year-old bubble. I once described gold as “shiny Bitcoin”, and characterised the metal’s price as a 6,000-year-old bubble.

That was a bit unfair to gold, which used to have intrinsic value as an industrial commodity (now largely redundant), and still does as a consumer durable widely used in jewelry.

READ: Commentary: Gold may have lost some of its shine but don’t write it off just yet

Bitcoin, by contrast, has no intrinsic value; it never did and never will. It is a purely speculative asset – a private fiat currency – whose value is whatever the markets say it is.