LinkedIn doubled in the first day of its IPO, Facebook is heading to $100 billion before it even floats, higher education might be a bubble, silver had a stab at being a bubble, commodity prices have become uncoupled from demand and China is hoarding rare earth metals. But if you're looking for the perfect bubble, Bitcoin looks like a great bet.
If you don't already know what Bitcoin is, it will take several minutes of reading largely inpenetrable articles to find out. Here's Wikipedia. Here's an explanation from Tim Lee. Here's Tyler Cowen. Bitcoin is a peer-to-peer virtual currency that's better, in various arguable ways, than other virtual currencies like Beenz or e-gold or Azeroth gold coins. A handful of technophiles accept it as payment. There's lots of ways to trade it. It's an internet currency that fulfils the standard criteria for being considered money and you can buy some right now, if you want.
"If Bitcoin becomes the new global monetary system, one bitcoin purchased today (for 90 cents, last time I checked) will make you a very wealthy individual. You are essentially buying Manhattan for a quarter...I think the probability of Bitcoin succeeding is very low. I would not put it at a million to one, though, so I recommend that you go out and buy a few bitcoins if you have the technical chops. My financial advice is to not buy more than ten, which should be F-U money if Bitcoin wins."
See, you can buy a Bitcoin right now for about six dollars. For an absolutely trivial investment you can pick up a dozen of the things, sit on them and just see if they happen to rocket in value. If they don't you've lost less than a hundred dollars - meh. What will actually happen to the value is obviously otherwise:
(1) there is a fixed supply of Bitcoins. The more people join in, the more the price of Bitcoins goes up. Here's a chart of the price movement vs the dollar over the last year or so, going from essentially nothing to about six dollars. Lots more people are clearly going to find out about Bitcoin, and while legislators will probably try to inconvenience the market at the same time technology will be making it easier to buy Bitcoins.
(2) as people buy Bitcoins, there is little or nothing to stop them ramping their investment and persuading as many other people as possible to buy some too. Both the law and professional integrity prevents journalists from ramping shares they own in publicly-traded companies, but remember this is just a currency of ambiguous legal provenance. There's a solid case to be made that even the normal blogging convention of disclosing investments doesn't really apply here - I've never felt the need to disclose that most of my assets are denominated in sterling. I've never seen a disclosure so complete or scrupulous that it bothers to specify what currency the writer's assets are in.
(3) the incentives here are for people to buy some speculative number of Bitcoins and then talk about what a great investment they are so more people do the same. Sooner or later the thing will pop as the supply of new investors dries up and everyone wants to turn their Bitcoins back into dollars but, for a while, it's going to be a fun ride.
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