< The Bitcoin Bubble


Friday, April 05, 2013

BROOKE GLADSTONE:  This is On the Media. I'm Brooke Gladstone.

BOB GARFIELD:  And I'm Bob Garfield. Four years ago when Bitcoin was introduced to the Internet, it was kind of an anarchic ideal, a virtual currency usable worldwide that wasn't regulated or backed by any central authority, bank or government. Buy a Bitcoin and a little bit of digital money sits in your online wallet. That was its selling point. Bitcoin wouldn’t, couldn’t be caught up in the reckless greed that brought down so many banks and foreign economies. It also was designed to be untraceable and anonymous, so it would never be crushed under the jackboot of “the man.” It's easy to see both the utopian and dystopian implications of unregulated money, that's why Bitcoin is such an inviting media story. But seldom has the coverage of a story had more impact on the story. Felix Salmon, Reuters financial blogger, wrote about the Bitcoin bubble for medium.com. Felix, welcome back to the show.

FELIX SALMON:  Thank you very much!

BOB GARFIELD:  Now, I described Bitcoin as a virtual currency, but it - it's also kind of a commodity, as well and, if you ask me, kind of a conceptual [LAUGHS] art project. What does it do? Who’s it for? And how does it work?

FELIX SALMON:  It does many things. It is a currency. It does feel a little bit like a commodity. It’s kind of a virtual equivalent to gold. The mindset is very similar, that you don’t trust banks, you don’t trust central banks, you don’t trust governments, and you move to a new asset class which is actually based on mistrust, rather than trust. It’s a way of paying for things on the Internet, especially, and most notoriously, illegal things on the Internet. If you want to buy illegal drugs and something like that, there’s a site called Silk Road, which only accepts Bitcoins, precisely because they’re untraceable.

So, it appeals to what I call the “narco libertarians” on the Internet, and there are quite a lot of them.

BOB GARFIELD:  All right, I’ve got American dollars, I want to be part of the Bitcoin economy. What do I do?

FELIX SALMON:  The easy thing to do, and it’s not actually that easy, is to go along to a site called Mt. Gox, which is the main Bitcoin exchange, and you can exchange dollars for Bitcoins and Bitcoins for dollars all day long, and people do. And right now there’s millions of dollars’ worth of transactions happening every day.

BOB GARFIELD:  Let's now turn to Cyprus, where bank depositors have had to face the very real possibility of having their, their assets confiscated.

FELIX SALMON:  So the initial proposal in Cyprus was that every single person with a bank account would get taxed at 6.75 or even higher percent. Now, the insured depositors at least managed to keep their insured deposits, but if you have more than deposits. But if you have more than 100,000 euros, then you’re going to lose a huge amount of your deposits. So people are very worried. They’ve realized in Cyprus that having money in the bank does not mean that your money is necessarily safe.

And, of course, the other thing that Cyprus is done, in terms of the Bitcoin angle here, is that it has given the media a really concrete lens through which to see this story. And so, what you’ve found was a bunch of people in Cyprus starting to talk about Bitcoins, a bunch of people in the media starting to talk about the people in Cyprus who are talking about Bitcoins. And then you started getting cycles of hype, which always happen when you get an asset bubble like we’re seeing with Biotcoins right now.

Cyprus was kind of the grit of sand in the oyster shell which created this massive Bitcoin bubble pearl.

BOB GARFIELD:  So give me an idea of the scope of the bubble. How much has Bitcoin grown in the past few weeks?

FELIX SALMON:  In the last few weeks it’s gone up from about 5 to 10 dollars, which is more or less where it had stabilized at to well over 100. If you bought Bitcoins just before Slashdot started talking about them in the first sort of mini Bitcoin bubble, then 100-dollar investment in the Bitcoins back then would be worth over a million dollars now. That’s an insane return.

BOB GARFIELD:  Which gets to the media angle, at long last. It’s clear why we’re so fascinated with this story. It's got so many “man bites dog” elements to it, but this is dangerous territory for reasons that have more to do with buying drugs from silkroad.com. How should reporters be addressing Bitcoin?

FELIX SALMON:  Well, one of the things a lot of reporters should do, frankly, is not be addressing Bitcoin. [LAUGHS] because every time people talk about Bitcoin all that does is fuel this ridiculous bubble and it's a really kind of profoundly silly story, for all that I’ve just spent 5,000 words talking about it. I do think that when you talk about it, one of the more interesting aspects of this story is looking at Bitcoin does help us to think a bit about the future of money, what a currency is, what money is, how we're going to be paying for things in the future. If you stop and think too much about what is a dollar or, you know, what is a euro or what is a yen, very rapidly your brain starts to hurt a lot and journalists don't like to go there. So if you're not willing to go there, then you should probably not be writing about Bitcoin at all.

BOB GARFIELD:  All right, you just got finished writing a 5,000-word piece [LAUGHS] on Bitcoin.


We are now speaking about your 5,000-word piece on Bitcoin.


FELIX SALMON:  Can we just erase this whole thing and not be doing this at all?

BOB GARFIELD:  Are we part of the problem –


BOB GARFIELD:  Or are we part of the solution?

FELIX SALMON:  We are absolutely part of the problem.

BOB GARFIELD:  Basically, we are captured in an Escher print of journalistic ethics.

FELIX SALMON:  I don't honestly think this is a, a major journalistic ethical quandary. If we go back to Cyprus, people in the media started talking a lot about bank runs in Cyprus, bank runs even in the rest of Europe. And reporting and talking about bank runs in the media is an incredibly dangerous and can be a very irresponsible thing to do, if you do it the wrong way because that kind of reporting can turn into a self-fulfilling prophecy.

Reporting about Bitcoin is a fluff piece which the vast majority of people are going to go, that's crazy, I can ignore that. And so, frankly, this is a lot less dangerous than some of the things I’ve seen out there.

BOB GARFIELD:  Felix, thank you very much.

FELIX SALMON:  Bob, thank you.

BOB GARFIELD:  Felix Salmon is a financial blogger for Reuters. He wrote, “The Bitcoin Bubble and the Future of Currency” for medium.com.


Felix Salmon

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Bob Garfield