A week of sharp falls in its value has caused investors to question whether it is even viable as a financial asset, let alone a global currency that would one day replace the dollar or euro.
At its height on December 16, 2017, it cost $19,499 to buy one Bitcoin, by late Friday you could get one for a mere $5,615.
That’s a fall in value of 71pc, more than Wall Street lost in the four traumatic days of the 1929 crash, when the market lost a quarter of its worth.
There is a silver lining though. Bank of England Economist John Lewis, of whom more later, says that 97pc of Bitcoin is estimated to be held by just 4pc of addresses, so those losses are confined to a small number of people.
Who knows, perhaps the old market saying of ‘buy when there’s blood on the streets’ may also apply to Bitcoin.
But it was never going to be what its founder, Satoshi Nakamoto (a pseudonym), imagined when he mined the first Bitcoin in 2009. He argued that banks could not be trusted with our money because they lent it on and created financial storms, and that their huge overheads meant they could not process small value transactions cheaply.
Despite the cynicism, Bitcoin and the array of other cryptocurrencies probably do have a future, in poor countries where banks are thin on the ground or in countries whose economies are in crisis.
But the major Bitcoin boosters are still out there, touting its potential for the whole world.
It turns out however that the basic laws of economics have asserted themselves over the hopes of the faithful. In a paper published this month by the Bank of England’s Mr Lewis he spelled out the “Seven deadly paradoxes of a cryptocurrency”.
One sin is that, unlike a government bond which pays interest and principal; or gold, which can be made into a bracelet; or even cigarettes, used as a currency in prisoner of war camps and which can of course be smoked, Bitcoin has no intrinsic value.
Boosters say it is worth what was paid to mine it – an argument that Mr Lewis demolishes. “If I waste £150 on employing labourers to find and exhume the buried remains of my childhood pet tortoise from my parents’ garden, those costs don’t make the skeleton worth £150 to an investor,” he writes.
Strike two: The Bank for International Settlements, the central banks’ central bank, has crunched the numbers and it reckons that storage demands would grow to over 100 gigabytes per user within two and half years – that’s equivalent to the storage memory of a laptop, a hugely inefficient waste of resources.
The very nature of Bitcoin rewards people for creating the currency, which means it is expensive.
Imagine if you went into your bank branch and they told you that you could only withdraw the €500 for your post-Brexit bargain shopping in €50 notes at a time and that you would be charged for 10 transactions.
Another sin is that because it is anonymous, crypto lends itself to market manipulation or outright fraud, while the biggest irony of all is that the more optimistic you are about tomorrow’s cryptocurrencies, the more pessimistic you must be about the value of today’s crypto.
Perhaps the next time you look at that Bitcoin ad, you should ask yourself: “What’s it worth in pet tortoise skeletons?” For everything else, there are euros.
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