Bitcoin (web cash) bubble bursts

Michael Hendrix
Director, Research & Emerging Issues
Forum for Innovation, U.S. Chamber of Commerce

Have we just popped a Bitcoin bubble? If you haven’t heard of Bitcoins before, they’re a digital currency with no central monetary authority, instead sourcing, verifying, and trading coinage through peer-to-peer networks. They can also be traded for “physical” currency, which has allowed for an official exchange rate to be established. And things haven’t been pretty recently. A single Bitcoin was valued at nearly $300 just a few days ago. As of Friday, April 12th, that same coin is worth $72.

On Thursday (4/11), Bitcoin’s largest exchange hub, Mt. Gox, suspended trading for 12 hours to let things cool down. Crazy volatility isn’t unheard of in traditional currency markets, but this kryptocurrency exists in a fledgling market whose value is very much derived from the dollar exchange rate. Bitcoin demand has pumped up its value and led to hoarding—now, finally, to panic. As Matt O’Brien points out in The Atlantic, this all looks vaguely familiar, almost like Bitcoin is less a currency and more a commodity from the dot-com era. Like in the 2000s, commodities can post tremendous gains thanks to their technological advancement, and yet ultimately disappoint in an instant. Bitcoin’s ultimate legacy though is still being written, and this is likely not the last you will hear from digital currencies.

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