Bitcoin, Sovereigns and the End TimesPeter Reville |
From currency analyst Christopher Vecchio, the quote of the day: “Personally it wouldn’t be my preferred vehicle to trade money because it’s unregulated. But people are deeming it legitimate even though it’s not backed by a sovereign. That could be the attraction behind it. There’s no sovereign credit risk to bitcoins.”
Unpack that: a digital scrip with nothing behind it but the full faith and credit of everybody else using it is preferable to currencies issued by sovereigns.
We’re in uncharted waters.
Several news outlets are reporting that the crisis in Cyprus has significantly increased the trading and value of bitcoins. The value of a bitcoin has risen by 20 percent in the past week, with a one month gain of 41 percent. Analysts report that much of this trading is coming from the stressed EU markets. As consumers see what is taking place in Cyprus, some of them are looking for a safe haven for their money. One Canadian entrepreneur has even claims to be installing a Bitcoin ATM in Cyprus.
I have to admit it. I have heard of Bitcoin and read a little bit about it, but I haven’t given it a lot of thought until now. It was created in 2009 be a pseudonymous hacker named Satoshi Nakamoto, ostensibly to pay for goods online with digital currency. There are about 11 million bitcoins in “circulation” with a market cap of about $1 billion. Now that is far from the $4 trillion in daily trading of more traditional currencies, but it is growing.
The fact that an increasing number of people are looking for alternatives to national currencies and perhaps, ways to get their money out of the country is interesting. Also of interest is the trust these folks have in a completely unregulated and mysterious currency.
Perhaps the old saying is true – “desperate times call for desperate measures.”
The surge in Bitcoin and the slump in Cyprus and their perceived link makes me think there are two stories that bear further investigation – alternative currencies and a watchful eye on the Euro crisis.
Topics: Economic Outlook