Having spiked to more than $1,200 in late November and early December, the virtual currency Bitcoin tumbled to less than $600 at exchange site Mt. Gox. Nevertheless, the so-called cryptocurrency is still far above its price of less than $20 at the start of the year, and even well above its interim peak of over $200 in April.
Chart courtesy of Bitcoin Charts
Bitcoin is likely suffering from undue attention of speculators, but the recent crash may largely owe to a number of regulatory concerns in China and the U.S. Overseas, the Chinese government has banned the nation’s largest Bitcoin exchange (by volume) from accepting renminbi for Bitcoin transactions. According to The Financial Times, “The Chinese central bank took a hard line two weeks ago, banning the country’s financial institutions from handling Bitcoin transactions.” Stateside, “The U.S. Treasury’s Financial Crimes Enforcement Network…tightened its grip on businesses that accept Bitcoin,” notes Zero Hedge.
Naturally, a new currency system like Bitcoin will suffer from efforts by authoritarian governments to suppress it. The cryptocurrency may be a bubble thanks to speculators, but even in this case, excess “liquidity” and near-zero interest rates (thanks to central banks) create conditions that are ripe for this kind of speculation. Whether Bitcoin would be worth $1 or $10,000 is impossible to know when central planners constantly meddle in the system and make price discovery impossible.
Read more about Bitcoin