In 1637, a speculation bubble over tulip bulbs resulted in such an overheated market that some bulbs were going for ten times the annual salary of a highly paid craftsman. Like all bubbles, the “Tulipomania” bubble burst, and anybody invested in the market at the time – and there were a lot of them – lost their shirts. When something gets that expensive, something is clearly out of whack, and those once ridiculed for being too old-fashioned to get in on the market are the ones left standing when it all falls apart.
I note this because in recent months, I have seen a whole lot of articles about Bitcoin, a peer-to-peer alternative currency that enables people to buy things in complete anonymity. Bitcoin evangelists stressed that Bitcoin wasn’t just a handy way to buy products that were illegal (drugs) or sketchy (porn) without being traced. No, it was a financial revolution that was going to change the entire system of money upside down! It was a new era! Blah, blah, blah.
The thing with Bitcoin is that it got enough press and enough curiosity for some people to buy into it. And this kicked off a wave of speculation where suddenly Bitcoins themselves started to appreciate in value as people bought and sold them for real money. Media began writing about big Bitcoin market gains and market crashes, and it all looked like the travails of some wildly hot start-up that only the blind would not see as worth investing in.
Bitcoin mania grew to the point where it spawned other digital currencies, the most laughable one of them all was Dogecoin, itself a parody of Bitcoin based on the character of a popular Internet meme – a dog named Doge. But Dogecoin then got so much press that it gained value, too, and the parody became the monster it lampooned. Writers breathlessly wondered if Dogecoin was the new Bitcoin. New Bitcoin? Guys, Bitcoin itself isn’t even old yet! Everybody just relax.
Things hit the wall recently when hackers decided that perhaps instead of raiding retailers like Target to rob people through their credit card accounts, they could just hack into Bitcoin banks and empty them out. One such bank, called Mt. Gox, was plundered so thoroughly that it simply shut down, and everybody lost their investments entirely. Similar Bitcoin bank failures and hackings only underscore that which the Bitcoin evangelists have blinded themselves to, and which any responsible investor or money manager already knew: Bitcoin was a fantasy fueled by ignorance, optimism and a dollop of good, old-fashioned naivete.
The central allure of it is that one can earn money for nothing simply by riding a wave of speculation on something that really holds no true value unto itself. That so many went for it shows that even in a world still grappling with the after-effects of AIG’s near-failure, and the failure of giants such as Enron and WorldCom before it, and the lingering miasma of the global recession, there are still folks for whom there is not enough risk management in the world to keep them from sinking their money into a bottomless pit. There are still folks who don’t see their life’s savings as something better suited for, say, an annuity or tons of whole life, rather than the figment of some insane anarcho-economist’s imagination.
You know what? Forget it. I’m tired of waiting for people to wake up and realize that the best way forward is through responsible risk management and professional financial planning. I’m inventing my own currency: the BillCoin. One BillCoin is currently worth one trillion Bitcoins, but that will probably go up. And since we’re all friends here, I’m giving you one for free. Just email it to some Bitcoin broker and watch the digibucks roll in. Or not. Either way, I’ll be watching from a safe distance.