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The rise of Bitcoin

23 February 2021

Hands up everyone who once had a Bitcoin...

As Bitcoin passes through the US50K barrier I've heard from a number of people who are sadly lamenting that they once had a king's ransom in the currency but used it long before its "best by" date.

Spare a thought for Laszlo Hanyecz who, back in 2010, used his Bitcoin holdings to buy a few pizzas.

The pizzas were worth about $30 and he paid using 10,000 Bitcoin, at the then-prevailing rate of exchange.

I won't shock you with how much those 10,000 Bitcoin would be worth today but you can imagine why Laszlo might be more than a little peeved at how much those pizzas cost at today's rates.

Oh how a crystal ball or two might have been so useful just eleven short years ago, when each Bitcoin was worth less than a cent.

I wonder just how many millionaires there are out there who were smart/lucky enough to hang onto their Bitcoins until today. I also wonder how many fortunes were given away for lack of foresight.

One thing I do know is that quite a few people are now searching high and low for even the smallest Bitcoin holdings they may have once had but forgotten about.

Just as that space down the back of the sofa can provide rich pickings when you're after enough spare change to buy a pizza, so it is that a lot of folk are now trawling their email archives and old hard-disk drives, looking for traces of Bitcoins once held but since forgotten. Even finding a single coin would make a huge difference to most people's lives.

Spare a thought also for James Howells of Wales, who has offered his local council a 25 percent bounty if they help him locate a hard drive that was consigned to one of their landfills. The drive allegedly contains around 7,500 Bitcoin worth more than half a billion dollars (NZ) today. Sadly, the council refused his offer since, they claim, there was no certainty that the drive would be found.

But where to from here for Bitcoin?

With Elon Musk buying into the currency the value has climbed even higher and some are predicting that eventually it will reach as much as US$1 million per coin -- twenty times more than its current value.

To decide whether this will actually happen one probably needs to examine whether there is actually any credible value to the currency or whether it has simply become a new twist on the old Ponzi schemes of the past.

Bitcoin is not backed by gold, shares or any other types of security. Its value exists, as far as I can tell, simply because some people are prepared to pay the price that other people are asking. Sounds a lot like the Dutch tulip bubble of the 1600s doesn't it?

So long as there is a steady stream of eager buyers, the value remains high. However, as soon as someone decides that the value is more imaginary than real, thus challenging the value, there's a very real risk of collapse.

This is a great test of greed versus intelligence.

As is always the case, whether it be a stockmarket boom, the dot-com boom, the tulip bubble or whatever, those who temper their greed and exit at the right time will walk away with unquestionable wealth. Those whose greed drives them to hang on for just a little more gain could find themselves without a shirt.

The transition from Bitcoin billionaire to shirtless hobo could happen in the blink of an eye, thanks to the etherial nature of the currency and the technology on which it is traded.

Ah... happy days!

I'd love to know what readers think. Have I missed something that really does provide some real-world collateral to the illusion that is Bitcoin's value?

Are you holding any Bitcoin and if so, will you be holding for the long-term or have you already decided to cash in?

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