The skyrocketing price of the bitcoin has boosters calling for the virtual currency to replace the U.S. dollar as the global standard. Enthusiastic investors drove its price to $1,000 (U.S.) in late November – a 700-per-cent gain from $12 a year earlier.
But critics warn against investing in the virtual currency, which is not backed by any government or central bank.
“I don’t understand it, I don’t get it. It’s a mania as far as I’m concerned,” says TD Securities chief currency strategist Shaun Osborne.
Mr. Osborne likens “bitcoin mania” to the tulip bulb bubble of 1637. Few had even heard of a tulip during the Dutch golden age when the price of a single bulb shot up to what is estimated to be 10 times the annual income of a skilled craftsman. The collapse of the tulip bulb market has gone down in history as the first recorded speculative bubble.
Similar warnings have been echoed but the bitcoin gained credibility this month after securities agencies said in U.S. Senate hearings that it could be a legitimate means of exchange.
“I expected a tougher regulatory stance from the U.S. I was a little surprised that they weren’t more opposed to it, given the position of the treasury and some of the other agencies in the U.S. on some of these less transparent payment methods and systems we’ve seen recently,” Mr. Osborne says.
The currency has been generated since 2009 by a network of computer operators who are paid to “mine” it by solving increasingly complex math problems. The computer networks involved also track transactions. Its supply is limited, and is not backed by physical assets. Its value depends on people’s confidence in the currency, which is currently not widely accepted for payment.
“You might as well buy tulip bulbs as far as I’m concerned,” Mr. Osborne says.
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