‘Bitcoin is not a repository of value, yet’
The bitcoin exchange, MTGox, went offline twice on Friday,
first, in order to install new hardware to help cope with increased
trading volumes and then to avoid a "stronger than usual"
The shutdowns led to a round of panic selling that forced values to plunge from record-high $260 for one bitcoin on 10 April to less than $100.
Financial advisor, George Cotsikis, believes that there’s nothing extraordinary about Friday’s events as one shouldn’t expect stable prices from bitcoin in the future.
RT:Are you a Bitcoin convert yourself?
George Cotsikis: I have been following quite a bit on what has been happening; I’m an interested party not an investor. I think it is a trustworthy currency algorithmically. It is very elegant, mathematically based structure which is quite robust and very beautiful. However as investment, as a possible store of value, I think it is pretty bad.
The volatility that we have been seeing in the last few days is characteristic of what we will be seeing in the future with bitcoin. So I’m not sure that the people who have just started going into this market actually realize the issues they could be facing.
RT:The value has been going up and down quite abruptly over the last couple of months. It reached its peak earlier this month, I guess over Cyprus, but is this kind of thing pie in the sky or is it the shape of stuff to come?
GC: Long term, math-based currencies are the stuff to come. However, I don’t think that bitcoin is the answer yet. It has a very inelastic supply structure, it has no central authority, which is interesting philosophically but in practice is a problem. We just had a one-day stagnation from $260+ dollars to $105. This is not a store of value, at this stage at least.
It is also a very thin market place which is really easy money made by speculators, so from a technological standpoint it is a future. But is it a short term or a medium term solution? No.
RT:How is the value determined?
GC: Short demand and supply that is part of philosophy of the bitcoin. There’s no central authority which is very interesting and probably the way to go. But only if there is enough demand and supply volume, if the liquidity is good enough to make sure that the price is achieved. There is some semblance of where the fair value for this should be. At this point in time, the supply curve is very, very limited. Bitcoins are supplied according to a very specific algorithm through time. So unfortunately the demand and supply will produce very volatile prices.
RT: Some converts, one couple in America in Texas, they’ve sold their house with it and another couple have sold their Porsche. Were they chucking the money in the bin, as far as you’re concerned?
GC: Yes, I think especially when you [sell] a house. There is a lot of hot dust, people want to get out of currencies, which are to a large extent manipulated. They feel very worried about the financial system, especially after Cyprus, and they should be. Southern Europe will possibly not be in the same shape, banking wise, in the next few years.
But there’re a lot of possibilities, very good alternatives in real estate, in precious metals, in precious stones, in private and public equities and intellectual property which are much better stores of value than bitcoins.