Bitcoin mania worse than tulip craze

March 4, 2014 Leave a comment

Bitcoin mania worse than tulip craze

Liu Xinyong

BEIJING, Feb. 28 (Xinhua) — The global bitcoin community was rocked this week by a pair of tragic mishaps.

MtGox, a leading bitcoin exchange headquartered in Japan, shut down deals on Tuesday. On Friday, the company filed for bankruptcy protection in Japan, with its chief executive saying it had lost around 850,000 bitcoins “due to weaknesses in the system.”

Adding to the woes of global buyers, the chief executive of a Singapore-based trading website, First Meta, committed suicide for reasons not yet known.

The bad news should serve as solid evidence of the great risks associated with the so-called virtual currency and even the very survival of bitcoin is currently under the starkest of challenges.

Does bitcoin qualify as a currency? Bitcoin.org, which claimed to be the first bitcoin website registered by “bitcoin core developers,” said yes. “Bitcoin is an innovative payment network and a new kind of money,” the website’s homepage reads.

The origin of bitcoins is a process called “mining,” which in essence is calculation of some complicated math problems.

Despite its digital nature, bitcoin has gained extensive publicity since 2013, with the price per coin having surged from around 13 U.S. dollars at the beginning of the year to as high as 1,200 dollars in November. Now it sells at more than 500 dollars per coin.

Dramatic fluctuations have been commonplace for speculators, a dynamic that has arguably proved a thrill for buyers, and certainly made good money for some.

However, the mania around bitcoin looks even worse than the Dutch tulip bubble that peaked in 1637, when tulip bulb prices skyrocketed before suddenly collapsing.

The tulip speculation, although irrational, at least had a concrete target product with some value. In contrast, bitcoin may end up to be nothing but some digital symbols.

With no government, organization or person claiming to be responsible for its security, the much-hyped bitcoin is simply a test field for the Greater Fool Theory, in which a participant assumes he or she can sell it later to a “greater fool.”

After the nerves of participants were frequently stung by painful incidents, the trust crisis in bitcoin will continue to deteriorate.

A self-evident truth is: If the entire bitcoin system is attacked by hackers, just like the case of MtGox, or the so-called “core investors” evaporate with buyers’ hard-earned money, there seems to be little buyers can do.

As warned by China’s central bank, bitcoin is not money or currency as it was not issued by a monetary authority, so it cannot and should not be used in circulation as a currency.

It is about time for speculators to see through the illusions of bitcoin and refrain from falling into any potential money-making scheme set by others

Filed under TMT Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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