Not All That Glitters Is Gold. The Dark Side of Bitcoin

Bitcoin has come back. In the first eight months of 2017 its value has more than quadrupled: it started around $1,000 in January to exceed $4,500 at the end of August. In this uphill race, it surpassed the price of an ounce of gold. It seemed to be a consecration for an object that, since its invention in 2009, has been presented as digital gold. And not without reason. Like gold, bitcoin is available in limited quantities: Unlike conventional coins, its issuance is not decided by the banks, but programmed by an algorithm. The scarcity of supply, in spite of growing demand, has pushed the price up, making bitcoin one of the most profitable investments in these times of productive stagnation. In fact, bitcoin is increasingly compared to a joint stock company, whose capitalization (which exceeded $70 billion, more than any listed company on the Italian Stock Exchange), trend in market prices and yield (+ 450% in one year at the end of August 2017) must be observed and analyzed.

So much so that, in the wake of bitcoin, there have been a proliferation in recent months of ICOs (initial coin offerings). These are public biddings for new cryptocurrencies, which have raised astronomical figures in record time (in August, Filecoin raised $200 million in 60 minutes): slim forms of shares, out of the control of the authorities, which leave room for unwarranted euphoria and real scams. Analysts and authoritative commentators try to distinguish between good and bad cryptocurrency investments based on fundamentals.

In fact, there is no lack of explanations for the increase in bitcoin prices. The adoption of a favorable regulatory and tax regime in some countries (such as Japan and Australia) promotes its spread.

Economic and currency instability in other countries (such as Venezuela on the brink of civil war and India affected by the sudden demonetization of large-scale banknotes) has promoted a break from traditional currencies, making bitcoin appear like a possible refuge from the whims (or even simply the inflationary temptations) of central banks. The influx of institutional investors and media exposure have contributed to bitcoin's demand and price. But this is again an extrinsic motivation.

➜ Its value? Anonymity
Technically, with its intrinsic qualities, bitcoin is (still) far from keeping its promises to allow instant and free payments. Quite the opposite, it is getting slower and more expensive (commissions have risen from a few cents to over five dollars per transaction).

Its main asset continues to be anonymity; therefore, its main use continues to be illegal activity. Bitcoin is used to break the law, whether they are unfair rules (such as preventing a Venezuelan citizen from defending himself from the expropriations of the Chávez regime) or appropriate and legitimate rules (such as those prohibiting drug or weapons trafficking).

Bitcoin advocates say that if the technical problems were solved and the regulatory framework became clearer, its use would spread. The inevitable appreciation of bitcoin would rest on the solid foundation of state-of-the-art technology. But a currency that appreciates progressively and erratically is not a good currency, though it may seem like a good investment. There is no guarantee that it will continue to be in the future. It is difficult not to see investment in the securities of a company that only produces transferable securities as purely speculative. It would be as if Apple did not produce computers, tablets and smartphones, but only Apple shares.