2013-04-09

BubbleCoin

The question is whether the (USD) price of Bitcoins indicates a high true market value for digital currency, or whether it is merely the product of market speculation?

Bubbles exist whenever the asking price of a good greatly exceeds the same good's economic usefulness. If the world were moving over to Bitcoins permanently, I would expect a steady increase in both Bitcoin value and the number of economic transactions made using Bitcoin as a medium of exchange. We need not argue about it, we need only consult the existing data (courtesy Blockchain.info).

This graph shows that the number of Bitcoin transactions has increased by a full order of magnitude in the past year, and that increase has been great, but steady.

Meanwhile, during that same year, the price of Bitcoins in USD is 40 times higher now than it was last year, most of those gains occurring only over the past month.

So, ten times the number of transactions at forty times the price.

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