Bitcoin, the true free market
Bitcoin was front and center at the Senate hearings this week in Washington DC. Where several people testified about bitcoin, and the implications is has for the government, and consumers. This seemed to spark a new round of interest in bitcoin, as it promptly rose to $900. Thus, triggering the same talk about price volatility, and the alleged bitcoin bubble. The mysterious nature of bitcoin has placed some of the most engrained financial pundits, and economists in a quandary of sorts. Many of them are still blithefully ignorant of what bitcoin is, and continue to remain firmly entrenched in the highly regulated & centralized financial system, they so wrongly call the "Free market".
Why is the price of bitcoin so volatile?
Adoption rate is one of the driving forces behind bitcoins volatility. We don't have an accurate count of bitcoin users; however, my guess it's a very small percentage of the global population. If 1% of the worlds population is around 70 million people, I would be surprised if the total amount of bitcoin users exceeded 5 million. Regardless, the amount is very small for a worldwide currency, and only a fraction of the population that will be using bitcoin in the future.
Given the small amount of bitcoin in existence (around 12 million), combined with the accelerating demand, bitcoin will volatile for quite some time. The demand will drive the price of bitcoin for years to come, as more users begin to adopt it. This is far from a bubble, this is the free market in it's purest form.
There are those who would compare bitcoin to the dot.com bubble; however, they are very wrong about that assessment. The dot.com bubble was primarily focused on technology companies that were receiving FED fueled money into vast amounts of vaporware. By comparing bitcoin to the dot.com bubble, is like saying that there was a bubble in Internet users in the year 2000; although, by percentage we are closer to 1991. Internet users grew in spite of vaporware companies that crashed.
Absence of Wall St. manipulation
Bitcoin is also free from the following:
- Financial derivatives
- High frequency trading (HFT)
- The Plunge Protection Team (PPT)
- Naked short selling
- Exchange volatility circuit breakers (Trading halts)
- Central banks, Quantitative easing, debasement
The price volatility can be extreme, but that is not necessarily a bad thing during the adoption phase. Once bitcoin reaches a level saturation among the worlds users, then the price volatility will start to even out. I'm amazed at many of the financial analysts & economists that cannot see this. They have truly been living in the age of centrally controlled & manipulated markets for far too long. Welcome to the unfettered free market ladies and gentleman.