It has been almost eight years since Alan Greenspan, the famous chairman of the Federal Reserve, told Bloomberg, in response to “Is Bitcoin a bubble?”:
“I guess so… currencies, to be exchangeable, have to be backed by something,” he said. “You really have to stretch your imagination to infer what the intrinsic value of bitcoin is. I haven’t been able to do it. But if you ask me, ‘Is this a bubble in bitcoin?’ Yeah, it’s a bubble.”
Waiting to burst?
Around the same time that Greenspan made his statement on the cryptocurrency, Xavier Sala-i-Martin, a professor at Columbia University, published a post in his widely read blog entitled “The Bitcoin Bubble“, in which he stated that it would never become a full-fledged currency, i.e. a widespread medium of exchange, which is why those who traded it were nothing more than “speculators waiting for its price to rise so that they could sell it later.”
In 2013, when the reputed banker and the well-known economist were making their analyses, Sathosi Nakamoto’s creation was just a four-year-old baby. Today, close to its twelfth birthday, as a currency, bitcoin is still extremely young, compared to the dollar or the pound sterling; but it is clear that no one would dare to call it a “bubble” anymore, as Greenspan and Sala-i-Martin did. A dollar invested in that passing bubble during the days when those economic celebrities were making their forecasts would have been multiplied by more than 100.
More visionary was Judge Amos Mazzant, of the Eastern District of Texas Fifth Circuit, when he ruled on August 6, 2013, that bitcoin was a form of money that could be used in the purchase of goods and services and freely exchanged with conventional currencies. Since then, various countries have been issuing legislation -cautiously- that recognizes bitcoin as money. Japan and Germany, among other countries, have already done so. But there is still no clear and consistent legislation on bitcoin as a means of payment.
In the United States, for example, the Financial Crimes Enforcement Network (FinCEN) does not consider cryptocurrencies as legal tender, but accepts the legality of the exchanges where they are traded. Cryptocurrency exchanges are legal in the United States and subject to the Bank Secrecy Act (BSA). The Internal Revenue Service, the federal tax agency, also does not recognize cryptocurrencies as legal tender, but has defined them as “a digital representation of value that functions as a medium of exchange, unit of account and store of value.”
The U.S. Treasury Department, Department of Justice, SEC, FED and other government agencies are moving forward in designing regulation of cryptocurrencies. Whatever the form of that legislation, sooner or later they will have to face the problem of recognizing Bitcoin and other cryptocurrencies as having libertarian power, i.e., the ability to pay off debts, and to be allowed to pay taxes. At that point, the bitcoin will be a full-fledged currency. This raises the problem of the survival of national currencies.
Whether bitcoin is a bubble or not is irrelevant, as any other asset, it’s susceptible to variations in supply and demand, in the world there have been bubbles in the financial markets, housing, commodities and even currencies, not for this reason we believe that they should not exist.
Today the problem is not how long the bitcoin “bubble” will last, but its incorporation -as well as the dozens of other cryptocurrencies that have appeared- into the payment system alongside national sovereign currencies. This is a conflict as complex and far-reaching as the one that led to the nationalization and monopolization of monetary creation, by means of the central banks that appeared throughout the 19th and early 20th centuries, and it’s being raised at a global level.