February 9, 2021 - 5:00pm
Bitcoin didn’t quite hit $50,000 today. Nevertheless the latest surge in the cryptocurrency’s value — triggered by Tesla’s $1.5 billion purchase — brings Bitcoin closer to point at which it becomes a mainstream investment.
Of course, Tesla is no ordinary company. Its CEO, Elon Musk, is now the richest man the world (take that, Jeff Bezos!) — and thus can afford to take a risk or two. What would be more significant is if less exciting companies follow Tesla’s lead. Indeed, the more boring the investor, the more interesting things will get for Bitcoin.
When demand from investors surges for a particular currency or bond or stock, the issuers of the asset can respond by issuing more of it. For instance, governments have been able to issue more debt because the money markets keep buying bonds (not to mention money-printing central banks). This stops the asset from surging wildly in price. For many investors this is part of the attraction — they’re more interested in having reliable stores of value than making a killing.
However, the whole point of Bitcoin is that its supply is deliberately constrained. The price impact of significantly increased demand from big corporate and institutional investors could therefore be dramatic. One can’t rule out surges — and collapses — on a grander scale than anything seen so far.
Should governments be concerned? After all, Bitcoin speculation isn’t like, say, commodity market speculation. It doesn’t destabilise the price of anything that anyone needs to buy. Furthermore, Bitcoin buyers know what they’re getting into — or at least they ought to. If they lose their shirts, there’s absolutely no moral obligation on the part of government to bail them out.
The only real danger is if Bitcoin values enter a sustained upward spiral without any sign of correction. In that case, the pressure on mainstream investors to abandon normal practice and pile-in becomes unbearable.
One can reassure oneself that we’re talking about rational people here — and that asset values don’t get pushed way beyond what is reasonable. But that obviously isn’t true. It can happen and has happened over-and-over again. No asset bubble inflates forever, but when a really big one pops — like the Japanese property market bubble in 1991 or the sub-prime mortgage market in 2008 — the after-effects are devastating.
We’re nowhere near such a scenario with Bitcoin, but one wonders at what price governments would intervene. $100,000? $200,000? $500,000?
Unlike most assets, the key question here is not ‘how high can Bitcoin go?’, but how ‘high will it be allowed to go?’.
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SubscribeIs this the right question: the question should be more, ‘How much money will we print without loosing the trust in money’
Bitcoin is limited, as such a possible currency replacement to €,$,£. what other do we have that will replace the currencies that are out of control?
Agree money printing is a massive concern but I very much doubt cryptocurrencies are the antidote. After all whilst the quantity of bitcoin issued has finite limits, there’s no limit on the number of various cryptocurrencies that can be issued. As such the amount of issuance is unlimited. At least fiat currencies are limited in number. Bitcoin is still a great solution in search of a problem.
I agree, I’ve been reading up on Bitcoin, trying to get my head around it. While Bitcoin may be limited, there are loads of crypto currencies out there, so in effect there is no limit. The price rises because people buy it, not because it has any worth related to its scarcity. But what do I know?
Bitcoin cannot be a replacement for those, for a start it can only support the transaction rate needed for a small town.
The answer to your first question appears to be “lots, particularly if everyone else is doing it”.
Why would governments intervene in the Bitcoin bubble. Governments have recklessly created or allowed banks to create more money than is required to keep the global economy going. The result has been ridiculous inflation in asset values mainly property. If huge amounts of this free flowing cash ends up in Bitcoin it’s not being used to pump up asset values. It’s probably also keeping the wildest speculators out of stock markets. I can’t see the problem for governments.
Intervention, what for and what type? Bitcoin is decentrilized system, no legal entity behind, a perfect market. Most big players going in long term levereging their assets. So bitcoin will be allowed to go as far as market takes it. The only proper approach is for State to keep its hands off. Indeed taxing profit from capital gains is one thing, but trying to affect value of the private property instead of the market is another. Why would State intervene to increase or decrease one’s property’s value or to cover for misallocated private investments? Low interest rates, lockdowns and trillions of dollar, euros, and pounds is more than enough.
The state could intervene if it creates an economically destabilising force, or potentially if they were worried that a large portion of the population might go bankrupt (see mid-nineties albania for what can happen when people get heavily into Ponzi schemes which go south)
I bought ethereum so I should be fine.
This article makes no sense to me. If the “bubble” bursts, Bitcoin will only hurt us investors. Keep the god damn government from interfering and socializing any Bitcoin losses, which is what government mistakenly does for every other god damn bubble. Let the players get hurt, and don’t socialize the losses.
Bitcoin can only be used as an investment, this makes it more like investing in stocks and bonds.
The only point of investments though is to be able to make a profit and withdraw the investment. No profit and the investment will be withdrawn and invested elsewhere.
Bitcoin needs to find new investors all the time though to keep the price rising. It will run out.
Musk is the CEO of Tesla, he doesn’t own it. How does anyone know that the CFO of Tesla hasn’t already sold Bitcoin having made a decent profit on it?
No, you can buy and sell assets using bitcoin, just like dollars or gold, if your buyer is prepared to accept it. At the moment bitcoin may appear to be a speculative asset, but its true function is as a store of value that cannot be undermined by governments or central banks creating more of a fiat currency e.g. through QE and thus inflation, because the total supply of bitcoin is limited by design and it is not controlled by a central bank. I have bought bitcoin as a hedge against currency fluctuations. In the long run, unless governments simply ban it, once all bitcoins have been mined its price will stabilise – it is by design not a ponzi or pyramid scheme.
What will be the fundamentals determining its ‘stable’ price?
Well, supply and demand. With bitcoin, supply is inelastic so the price will rise to the point where buyers stop buying. Thereafter the price will fall if holders sell (because they have found a better home for their money) or rise if more buyers appear (because external events make bitcoin more attractive – inflation of fiat currencies, currency fluctuations, political or economic instability) just as happens now with e.g. gold. But bitcoin should be better than gold, because you can’t just go and dig up more bitcoin, and it is physically easier to hold and transfer
Actually I think you’ll find Musk does own quite a bit of Tesla, which is why he’s the richest man on the planet – for now.
“The only real danger is if Bitcoin values enter a sustained upward spiral without any sign of correction. In that case, the pressure on mainstream investors to abandon normal practice and pile-in becomes unbearable.”
BS
Nobody “has” to invest in anything. Let them lose their shirts.
..the concern of those who would have us subjected to a Great Reset, is that their plans for a global reserve currency, which is likely to to have a crypto element, but which they control the supply of, could be usurped if Bitcoin and other privately created crypto becomes ubiquitous in terms of store of value and means of exchange. So expect intervention.
I advise anyone contemplating investment look up Tulips in 1637.
Bitcoin and other cryptocurrencies should be ignored by all sane people and institutions. Even if you win you lose, because there is no way of knowing whether you have sold at the top! And its value has no significance whatsoever for the real economy.
See https://www.futureeconomics…
Bitcoin should be banned immediately. It is an ecological disaster, now using more power than argentina so that as few ‘investors’ can gamble on it.
You might not be able to shut it down due to its decentralised nature, but it could still be regulated out of existence if a few countries decided to shut down the on/off ramps.
Sooner or later the “Green” movement will come up against the power requirements of servers…maybe then nuclear power will be seen as a viable clean power source when designed properly.
Got nothing against nuclear when it’s priced correctly, taking teardown into account. If it can compete on energy prices in the open market with that proviso then great.