The assumption in some quarters is that crypto-currencies will replace gold as money, or at least challenge it. This is an error borne out of a misunderstanding of catallactics, or the theory of exchange. It also ignores the fact that beyond a few European countries and North America, gold is firmly money in the minds of ordinary people. I wrote an article on this subject, explaining why cryptocurrencies are not a new form of money, here.
Anyone reading this article may wish to read my original article first, to understand the true status of cryptocurrencies. I concluded that cryptocurrencies are the purest form of financial bubble in the history of speculation, and will be of great theoretical interest to future generations, just as the phenomena of the Mississippi, South Sea, and tulip bubbles are to us today. I also wrote that
“It’s worth noting that all crypto-currencies together are worth $120bn, with bitcoin $55bn of that total. This is only a very small fraction of cash and deposits worldwide. Therefore, the point where new money to fuel the craze runs out does not appear to have been reached, and could have much further to go.”
That was in August, when bitcoin was about $3,000 against today’s price of more than double that. In the short-term, all sorts of dubious promoters are sending unsolicited invitations to buy, promising price gains of thousands per cent. It’s a fair bet these promoters own cryptocurrencies themselves, and are puffing their own interest. A failure of the innocent to take the bait in sufficient numbers could easily lead to a sharp correction.
We must look beyond that. This article will examine more closely the dynamics driving bitcoin and other cryptocurrencies, and it concludes that rather than destabilise gold, if the craze continues it is far more likely to destabilise fiat currencies.
…click on the above link to read the rest of the article…
