After Bitcoin’s almost unimaginable price run, many pessimists are wasting no time gloating over its subsequent fall. In the face of these events, you may be asking yourself what kind of sane person believes the death of Bitcoin has been greatly exaggerated?
But I do believe it. In 2011, Bitcoin had it’s first major price-run, after which it subsequently crashed — losing around 90% of it’s pre-collapse value. In the following months, headlines gave the fledgling crypto-currency no quarter. “Bitcoin is dead!” they proclaimed. Phrases like “joke,” and “absurd experiment,” and “monopoly money” abounded. The critics would have had us believe the bubble had finally burst, and the story of Bitcoin had come to an end.
Despite all this, Bitcoin bottomed at around $3 and then slowly began to creep up. Those fortunate (or smart) enough to buy Bitcoin after its first crash saw astronomical returns on their money in less than a year. Bitcoin rose. And it rose. And it rose.
Ultimately, it topped out at around $250 per unit, and then collapsed again. But let us more closely examine this so-called “collapse.” Unlike its opponents, I am quite convinced the Bitcoin story is nowhere near over (in fact, I believe it has hardly begun). But in the latest particular gyration, at its bottom the digital currency traded around $50 per unit. As of this writing, it hovers around $130. Again let me point out that — using either of these prices as your metric — if you had bought after the first collapse, your rate of return would have been staggering, in less than one year.
Bitcoin’s Keynesian opponents would argue that this price appreciation is precisely the reason it cannot be considered a currency. Those of us who are decidedly not Keynesians, on the other hand, would maintain that such an argument is pure nonsense. But that is a discussion for another day. Or, perhaps it is just moot (I tend to gravitate toward the latter conclusion).
I don’t know what it is about human nature that causes so many to so quickly condemn new ideas, but it is certainly one of the less attractive aspects of our existence. Never has a revolutionary philosophy, scientific premise, or technology been introduced that wasn’t almost universally rejected by the status quo. When Sir Isaac Newton, for example, proposed the existence of what he called gravity, he was ridiculed by his colleagues and peers. Why should digital currencies be any different?
Recently, critics like Nobel Laureate Paul Krugman and former Obama economic advisor, Austan Goolsbee have put no less than their reputations on the line with their ardent and brutal criticism of Bitcoin. These strong reactions are precisely what you would expect from an establishment fearing the loss of its credibility. We’ve seen this behaviour repeated time and again through the ages.
Nonetheless, as people continue to make bold claims regarding Bitcoin’s “rise and fall” — fatuously dismissing it as insignificant — remember that Bitcoin is not a thing that can be attacked, per se. Rather, it is an algorithm that has withstood four years of unbridled scrutiny, review, audit, and attack — from peers and adversaries alike. Not only has it survived, it has thrived.
In those same four years, Bitcoin has gone from a price of zero to its current market value. It may be volatile, and it may be terrifying to those who would see themselves discredited by its success, but the ultimate proliferation of the technology (whether through Bitcoin or its progeny) is imminent.
As for people like Krugman and Goolsbee, I try to imagine the devices they will use to backpedal away from the passionate declarations they have made — impetuous statements, positively dripping with the arrogant certitude. What will they say if (when) digital currencies do win the day? It must be terrifying, once the thrill of the attack is over and the cheers of the sycophants fade away, to contemplate such an eventuality.
I believe the death of Bitcoin has been greatly exaggerated, indeed. For the life of me, I cannot think of a single period in history when a technology of this importance and persistence simply… went away. Technologies change and evolve, but they don’t simply cease to exist.
In the same thought, however, I find myself wondering about the long-term credibility of puffed-up academics like Paul Krugman and Austan Goolsbee. For, in the end, the reputations of those who try to suppress progress often do cease to exist. If I were a betting woman, my money would be on Bitcoin.