The retired head of the Dutch central bank has commented that Bitcoin is indeed a bubble, just like tulipmania, and has gone on to point out that at the end of tulipmania, after the prices collapsed, at least you still had a tulip. He does have a point, the pricing issue does make it look as if there's a bubble in Bitcoin, but he's also missing something as well.
If your Dutch is up to scratch you can read one of the original reports here:
Bitcoins zijn erger dan de Tulpenmanie. Toen kreeg je tenminste nog een tulp. Nu krijg je niks.
Dat zei voormalig president van De Nederlandsche Bank Nout Wellink woendag tijdens een bijeenkomst met studenten van de Universiteit van Amsterdam.
Wellink omschreef tijdens de discussiebijeenkomst Room for Discussion de virtuele munt als een hype en constateerde dat “dit bouwwerk” vroeg of laat instort.
No, me neither. So, how about this in English:
The former president of the Dutch Central Bank, Nout Wellink, has told students at the University of Amsterdam that the hype around bitcoin is worse than his country's Tulip mania in the 17th century.
"Sooner or later the facade will fall", Wellink said, calling bitcoin "pure speculation" and "hype" according to comments reported in the Dutch press.
"This is worse than the tulip mania," he continued. "At least then you got a tulip [at the end], now you get nothing."
As I say, I look at Bitcoin (and more importantly, the other cryptocurrencies) and see what I take to be bubble behaviour in the pricing. But as I've also pointed out that there's a bubble going on doesn't mean that there's not going to be something useful at the end. For, just like Tulipmania provided tulips, something that is still a successful industry in Holland, so Bitcoin might leave us with an international payments system that is cheaper than others and in some manners safer.
Alan Greenspan is also calling Bitcoin a bubble:
Former Federal Reserve Chairman Alan Greenspan said Bitcoin prices are unsustainably high after surging 89-fold in a year and that the virtual money isn’t currency.
“It’s a bubble,” Greenspan, 87, said today in a
Bloomberg Television interview from Washington. “It has to have intrinsic value. You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven’t been able to do it. Maybe somebody else can.”
It's worth recalling that Greenspan is actually rather conservative in his view of money. He was a gold bug for many decades for example. Thus this idea of his that there needs to be some intrinsic value to what is being used as a medium of exchange. Which simply isn't true: there have been many successful currencies that have no intrinsic value at all. They were only valued because the people in that society valued them (the stone coins of Yap come to mind, where even if the family lost it they were still considered to own it.). So it is with Bitcoin: they have value purely and solely because people are willing to assign value to them and that's it, nothing else.
I do indeed think that it's all going to end in tears before bedtime as a result of the speculative bubble but I regard these two critiques as being not quite right. Money doesn't have to have an intrinsic value at all. And it's is possible that when the smoke clears we will have an international payments system. Not as pretty as tulips to be sure, but still a pretty useful thing to have.
