Wow the bitcoin bubble is really powering up now LINK1. As I pointed out in my April 3 post LINK2 the bitcoin bubble might peak at as much as $1,000 at the time it was $120 it then went up higher to around $260 fell back to around $70 and in now rapidly accelerating such that $1,000 is more than feasible. Price at time of posting is around $728 (bid - offer prices are approx $732-$724 from plus500.co.uk see below)
What worries me about this recent rapid rise in prices is that people are now entering the market purely on the belief they will make a fortune each day. The Chinese seems to be keen on buying bitcoins and senate has today given a favourable review of bitcoin in that it has said per se there is nothing wrong with it. However, this is very reminiscent of the Tulip Mania - diseased tulip bulbs were sold at every higher prices in the Netherlands peaking in march 1637 at 10 times a person's annual salary, and people would even sell their houses to buy them LINK3. Of course, diseased Tulip bulbs were intrinsically worthless and so too are bitcoins - they are just bit of computer code and nothing more than that. Oliver Blanchard wrote a famous paper in 1979 looking at "rational bubbles" LINK4 an important characteristic of a rational bubble is that its price needs to accelerate upwards to compensate for the risk of a price collapse when it eventually and inevitably occurs. Bitcoins seem the be following this rational bubble path as the graph below shows.
So CAVEAT EMPTOR (buyer beware). Lets see how this plays out. Of course, this mania may get even worse than I predict because bitcoins have the potential to become a truly global bubble (the Tulip Mania bubble was mainly confined to the Netherlands). In addition, what worries me is that there have been significant thefts of bitcoins and who started them and how they come into being is a bit of a mystery to the layperson (including me)....so I suspect people are ignoring all these issues just to play for the capital appreciation potential. The bitcoin price price chart for the last year is below from http://www.bitcointcharts.com they were $12 a year ago ! and $2.28 two years ago and a mere 5 cents in July 2010.
So CAVEAT EMPTOR (buyer beware). Lets see how this plays out. Of course, this mania may get even worse than I predict because bitcoins have the potential to become a truly global bubble (the Tulip Mania bubble was mainly confined to the Netherlands). In addition, what worries me is that there have been significant thefts of bitcoins and who started them and how they come into being is a bit of a mystery to the layperson (including me)....so I suspect people are ignoring all these issues just to play for the capital appreciation potential. The bitcoin price price chart for the last year is below from http://www.bitcointcharts.com they were $12 a year ago ! and $2.28 two years ago and a mere 5 cents in July 2010.
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