David Chaplin 's Opinion

A personal finance columnist for the NZ Herald

Inside Money: Burying Bitcoins - virtual cash, future trash

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Photo / AP
Photo / AP

The digital currency Bitcoin has blasted back into public consciousness this week with its price hitting a stratospheric US$1,200 or so before settling down around the US$1,000 mark, as at the latest valuation.

Well, the story that actually captured public attention was the multi-million dollar loser who inadvertently disposed of his virtual Bitcoin fortune in a Welsh dump.

In some versions of the story, James Howells, was described as 'unlucky', which stretches the meaning of the word to historical highs.

The extent of Howells' 'luck' also varied considerably, depending on the day, hour, or maybe minute, when each article concerning his rubbish disposal error was published.
Of the headlines I surveyed, the value of his reported loss ranged from US$6.5 million to US$9 million, reflecting the massive volatility in the Bitcoin price.

But as Australian fund research firm, van Eyk, points out in note published this week, Bitcoin, like gold, is prone to such valuation mood swings.

"As with gold, though, there is no way to objectively value Bitcoins, which ultimately makes it a speculators market where buyers need to exercise caution, particularly when the price chart goes exponential," van Eyk says.

Despite these concerns, the researcher says Bitcoin could make as much sense as gold in one respect:

"Bitcoins have no less of a claim to legitimacy [than gold], provided people are willing to continue accepting them as a valid store of value," van Eyk says. "They are particularly useful to those people in countries which have stricter currency controls as Bitcoins function as a good diversifier of wealth."

In an article also published this week, US financial columnist Joe Weisenthal, expands on that final point.

"Right now, Bitcoin has real world value to people because there are speculators who will supply Bitcoin on demand (almost) and buy Bitcoin in a liquid manner, allowing people to conduct online transactions that they might not otherwise be able to using a traditional currency," Weisenthal says. "If the speculators ever lose interest (which might happen if the price stops going parabolic) then the people who use it for real transactions are cooked."

And then everyone else would have to bury their Bitcoins too. Howells might've just been ahead of his time.

David Chaplin

A personal finance columnist for the NZ Herald

David is a freelance journalist who has covered the financial services business on both sides of the Tasman for over 15 years. David has edited magazines and websites for the financial advice, investment and superannuation industries. Today, he contributes to various publications in Australia as well as his bi-weekly blog for the NZ Herald under the 'Inside Money' banner.

Read more by David Chaplin

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