Since Nov 8th the price of Bitcoin went from $400 to $800. The chart that Kevin Rose (Serial Entrepreneur and co-founder of Digg) didn’t see was that for 3 to 4 weeks prior to his post trading in Chinese Yen went from a 5-10% share to 50%+. The significance of this was something that I could not comprehend at the time because despite Bitcoin being a global market, internalising what that means is an intuition myself and everyone else have yet to experience and realise.
Near the Bitcoin Kiez (neighborhood) in Berlin there used to be a bar that every Tuesday would have one ping pong table that everyone in the room would play on simultaneously. Rotating around the table the person that missed the last shot was out, the table reset, rotation resumed with the remaining players. The last two standing then played one round of first-to-3-points to determine the winner. I’m sure this form of play has many names but around here it was called “Chinese Ping Pong“. If you asked someone how this name was bestowed you would get a string of various stereotypes the most common being something like “a billion people and not enough ping pong tables?“.
With common market dynamics Kevin Rose was not in error with his assessment leading him to go Bear on Bitcoin, if only briefly. A near doubling of Return-On-Investment in under two weeks is cause for suspicion with any other Exchange-Traded Fund known. The problem is that all our intuition of such dynamics applies only marginally to Bitcoin. Why? Because never, in recent history, has there been an introduction of a financial tool for storage of value so universally accessible as Bitcoin. This brings us to the housing market.
In the Bitcoin Reddit community there are three types of early adopters: Those waiting to sell in order to pay off debt, those waiting to pay for their house/apartment and those that are filthy rich. Outside of this community nearly everyone I know evaluates their savings and investments in a manner that ties to the first two: housing or debt reduction.
How is it that in 2013 the only form of storage of value that the middle-class has is housing? Sure one can diversify with stocks and other funds but housing still seems to be the staple for the middle-class. This is a result of many generations of constant rise in the value of housing making it one of the few ways people see to stave off the effects of inflation on their savings. This perception and trend has been supported, if not protected, by domestic economic policies. The result is a monopoly on the options the middle class perceive for storing value. Bitcoin’s value due to speculation may fool one into thinking otherwise but at its core it is deflationary. This may bring into question the age old monopoly housing has enjoyed.
Unlike housing Bitcoin is not a financial tool accessible only to the upper-middle-class. Bitcoin is one of the few (the only?) investment tools accessible to long-tail economies: classes of society that for whatever reason (lack of significant wealth, no official residence, hidden wealth, etc) cannot purchase a house. This is what is different about the Chinese Rush/Bubble currently happening.
Those that do not have the ability to utilise current value-storage tools often avoid saving at all. Ignore speculation for a moment and imagine an anti-inflationary storage of value accessible to every class of society. What effect would this have on those segments of society? While the price may relent and fluctuate, the unique disruption to the current class based financial tools at the hands of Bitcoin (or highly accessible deflationary instruments of the future) probably will not.