On Monday, I accidentally showed up around thirty minutes early to my 12:30 p.m. history class. The time was just short enough to force me to stay in Phelps Hall, but not long enough to do anything. So I decided to do the usual and crack out my laptop to browse Facebook and Reddit.

It was pretty much the usual. Friends uploading new pictures, lame memes reposted from Reddit and chuckles about North Korea’s bullshit, but something caught my eye. A thread on /r/economics mentioned Bitcoin, a new all-digital currency championed by libertarians and Tea Partiers as being the digital alternative to the gold standard. This wasn’t the first time I had heard about it — back in February, my friend tried to get me to buy into it when it was still around $2 per digital coin. I didn’t. I thought it was a bubble then, and I know it’s a bubble now. But curiosity got the best of me, and I just had to check the exchange rate to see if I was right.

“Holy fucking shit!” I nearly jumped out of my seat. I was right, but inconveniently so. Back in February, my friend had tried to suggest that I invest around $500 to buy around 250 in shares, priced at $2. Had I done that, I would now be sitting on 250 shares of Bitcoin now valued at $236, or around $59,000 in estimated worth. “Holy fucking shit” is right.

Back to Facebook, my friend’s News Feed lit up like the Fourth of July, proclaiming the meteoric rise of Bitcoin, and heralding it as the future of digital currency. My cries of warning and temperance went unheeded as he gleefully listed off the soaring price. $175. $185. $231!

The reason why it was so high was because it was a speculative bubble. Bitcoin was marketed as an alternative to the U.S. dollar, the British pound, the Japanese yen and the euro, as being a hard currency that can be used to barter for goods. The advantage is that it is completely free from any central banking monetary policy, so it can increase and decrease at will. This makes it the world’s first universal investing currency to avoid the drags and pitfalls of inflationary and deflationary cycles brought upon by fluctuations in the money supply. Or at least that’s what Bitcoin would have you believe.

In the opinion of this writer, it’s just a hoax, and I’m not in bad company. Jim Cramer of “Mad Money,” financial analyst Felix Salmon and even Nobel Laureate Paul Krugman had less than stellar things to say about Bitcoin, with Cramer even rejecting it as a currency at all.

To even be considered a currency, Bitcoin would have had to have been accepted as a medium of exchange, but barring a few examples, virtually no one has done so. Instead, it was quite rapidly identified as a potential bubble by market speculators. They simply wanted to buy enough shares at a low enough price, hoping that some poor sap would buy a few several months down the road at a grossly inflated price. Think of it like buying tickets to the ball game playoffs before the season starts. If your team makes it to the playoffs, you can sell the tickets for a handsome profit. If they don’t, then you’re shit out of luck, unless you can offload it to some poor sap before that. And that’s exactly what’s happening to Bitcoin.

The value of Bitcoin peaked last night at around $260 before falling to $105. In a move that is echoing the housing bubble of 2007-2008, it is slowly climbing back up again, as the “true believers” are in complete denial of Bitcoin’s impending doom. On Reddit’s /r/Bitcoin subreddit, there’s a thread with 755 upvotes titled “Hold Spartans!” with a link to a Photoshopped image of Spartan phalangites sporting Bitcoin shields.

Back to Facebook, I replied about an hour ago to my friend’s thread. He responded, “Crashed??? Time to buy, buy, buy!” “No… dude,” I chimed back in, “We’re at the first bull trap, and you’re in denial. Sell now, recoup your principle, or get wiped out.” But before I could finish, he replied, “It’s just a bump, not a crash.”

I doubt that. But it hasn’t stopped people dumping tons of cash into the market, with some even selling their houses to get the requisite cash to invest. I just now have to meditate on the consequences of my action or inaction. On the one hand, I quite clearly didn’t make $59,000, but on the other hand, I didn’t participate in a predatory market strategy.

Kevin de Bree is a third-year history major… and was almost a $59,000-iare.

 

Views expressed on the Opinion page do not necessarily reflect those of the Daily Nexus or UCSB. Opinions are submitted by primarily by students.

 

A version of this article appeared on page 15 of the April 11, 2013 print edition of the Nexus.
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