Rejoice everyone, it is that time of the year again. This week’s edition of Tech Tent is our annual festive quiz – and although I am writing this before taking part on one of the teams, I suspect that Bitcoin will feature among the questions.
What a year it has been for the crypto-currency, which started 2017 worth less than $1,000 and by last weekend had climbed to within a few dollars of the $20,000 mark. For all of that period, sceptics have been predicting that the bubble would burst and in the past 24 hours it has seemed at times that this was happening.
The price, which has been sinking all week, fell more than 10% in a matter of hours, dipping towards $13,000 before staging a partial recovery. Though as someone commented, it is moving so fast, any Bitcoin article is out of date five minutes after it is written
What is worrying is that we are at the stage in a bubble where people have been rushing in without much thought and with little understanding either of how Bitcoin works or the risks involved.
Earlier this week while filming a report for the BBC News at Ten, we visited a Bitcoin cash machine in a cafe at a London Tube station. I’d been here before when it appeared to be scarcely used but this time a steady stream of people – mostly young men – arrived to stick £20 notes in the machine and get a tiny fraction of a Bitcoin in exchange.
Most did not want to speak but one told me he had got about £10,000 invested in various crypto-currencies. When I asked what he would do if the bubble did burst, he insisted: “I’ll hold it. I have faith that it will go back up. Even if it collapses, I’m going to hold it.”
Over on Reddit on Friday, there was a sudden dawning of awareness that markets can go down as well as up: “Argued with my wife for months to buy,” wrote one man. “Finally get approval to buy $1,000 at $19,400.” This was followed by an expletive.
These wild swings in Bitcoin’s value are making it ever more evident that it is not really a currency – there are very few places that accept it and why would you spend it if you thought it would be worth more tomorrow? At our BBC editorial meeting, there was a discussion about whether we should continue to use the term “crypto-currency” when Bitcoin so clearly does not operate as a means of exchange – though we decided commodity or speculative asset did not quite do the job.
It does now feel that something has got to give as the frenzy spreads from Bitcoin to other “currencies” and to the blockchain technology that underpins them. This week the drinks company Long Island Iced Tea saw its shares soar by more than 400% after it changed its name to Long Island Blockchain – proof, surely, that the crypto-craziness is now reaching terminal velocity.
That is certainly the view of David Gerard, whose book Attack of the 50 Foot Blockchain is a very convincing takedown of the whole phenomenon. He is worried about the people who have got caught up late in the day: “This is how economic bubbles work – people buy because other people are buying and they assume they can sell and get rich. When the bubble pops – and it’s when not if – it’s going to be a disaster for a lot of people.”
One worry is that when people do try to rush for the exit they find it blocked. I have been selling some of the Bitcoin I bought 18 months ago, paying about £60.
In theory that is simple enough and indeed I have sold £500 worth for a small fee. But actually getting that cash into my sterling bank account is far from seamless – so far I am a week in to what promises to be a two-week process.
Hardly the frictionless finance that was promised by Bitcoin’s advocates and if the rush to sell gathers pace there is a good chance that the system seizes up completely.
Let me end by wishing all Tech Tent listeners a Merry Christmas and a Happy New Year. I expect the crypto-craze and the blockchain bubble will continue to provide us with stories throughout 2018.