Now there’s nothing wrong with the basic proposition of bitcoin. Certainly, virtual currencies sound like an ideal antidote to a world of loose monetary policy. In fact, the main attraction of bitcoin is that, free from the debasing hand of government and with an absolute circulation limit of 21m bitcoins, it can never be devalued in the same way as fiat currencies like dollars or pounds, for which there is no limit to issuance.
That is ostensibly the reason given by the Winklevoss twins of Facebook fame for their latest venture, to create an ETF that would allow bitcoin to be traded by retail investors just like stocks and shares. “We have elected to put our money and faith in a mathematical framework that is free of politics and human error,” say the Winklevii, as the brothers have been popularly dubbed, who are said to have gained control of 1 per cent of the 11m bitcoins so far in existence, worth around $11m, which they will put into their vehicle, the Winklevoss Bitcoin Trust.
Yet I find it hard to believe they are really backing bitcoin for altruistic or even philosophical reasons. More likely they sniff a profit - having missed out on Facebook's billions, perhaps they don’t want to miss out if bitcoins make it big, too. Certainly that appeared to be the overriding motive of the bitcoin evangelists interviewed in the FT Weekend magazine a few weeks back.
In fact, bitcoin already has a reputation as a haven for speculation – established in 2009, it rose to media prominence this year when the price tripled in a fortnight before halving in value in a six hour period. That volatility is hardly a great advertisement for a currency pitching itself as the new store of value. Even its worth as a means of exchange is questionable – few accept the currency bar a handful of black marketeers, while bitcoin’s so-called backers seem more interested in building up personal hoards than promoting its use. Perhaps they should remember the words of Francis Bacon, who said that, “money is like muck, no good except it be spread.”
Of course, bitcoin, or some other virtual currency, might well still become the next big thing – it certainly wouldn’t be the first powerful force the internet has unleashed for the greater good. But in its current form, it’s not something that anyone calling themselves an investor should worry, like the Winklevii, about missing out on.
