The Bitcoin "bubble"...?

Started by ebalosus, April 14, 2013, 09:52:45 AM

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Hey people, been AFK for a while, but have come back with a question that some of you may be able to answer better than me  ;)

On twitter, one of my former teachers retweeted a statement from an ITSM consultant about how the current fluctuations in the value of Bitcoins represents a speculative bubble. I disagreed with him, because (at least to my knowledge on austrian-school economics) there was no encouragement from financial institutions or government to buy Bitcoins, thus the recent price increases were due to increased demand relative to supply, rather than a misallocation of resources. He then responded with something regarding the perversities of Bitcoins (whatever the hell that means)  :-\

Here's the discussion here, for those interested: https://twitter.com/davebremer/status/322422248046735360

It made me wonder: Is there a Bitcoin bubble? Could it be defined as a bubble within a more mainstream economic view?

I'm working on a rather lengthy blog post about Bitcoin, but it's slow going.

Personally I see no evidence that it's a speculative bubble. The price is trying to seek equilibrium, and no one really knows where that is. I believe what you're seeing is growing pains, and after a certain critical mass of participants and trading is hit, the price will stabilize and Bitcoin will become a reserve currency. Whether that happens, and whether it goes on from there to be a proper currency in its own right, is something I believe no one can predict.

BTW, the Ed and Ethan podcast (on which I was a recent guest) also has a Bitcoin podcast where they go into a lot of these issues.