A year ago I wrote a post critical of BitCoin. At the time, it was trading at $1000 and all the smart people were saying it was the future. A year later and it is trading at $300 and no one talks about BitCoin anymore.
There are a lot of practical problems with digital currency, but the biggest defect is no government will ever let control of their currency slip into the hands of a bunch of anonymous nerds. It’s why we no longer have hard money. Money is the language of economics. Control the language and you control the debate. Control the money and you control the economy. One of the reasons the US runs the world is the dollar is the world’s reserve currency. That and a massive military and a nuclear arsenal.
Putting that aside, the other big problem with BitCoin is it is not really money. You don’t go into the market and buy your groceries with stock certificates or bonds. Those things have value, but they are not money. They lack certain key attributes of money, namely the predictability we expect with money. I know what a dollar or pound or yen will be worth a year from now, with a 99% accuracy. That stock can have a range of values, perhaps a very broad range of values. That’s what we see with BitCoin.
Of course, BitCoin is valued in dollars. That’s because the dollar is money, a universally accepted money. BitCoin is a gaming device. People bought them as an investment, a bet that dumber people would come along and buy them at a higher price. It turns out that peak stupid in the BitCoin realm was a year ago.