Bitcoins Are a Free Market Money

Bitcoins traded at almost $17 yesterday. It’s obvious that they are a free market money because people are using them as such. There have been a large number of free market monies historically. The market decides, not analysts. Analysts can ponder what factors lead to a money’s use and survival, but the valuation of the money is ultimately left to the market. It’s equally obvious that, like any other money including gold, the bitcoin prices depend on factors that affect its supply and demand. Bitcoin prices were negatively impacted recently by such things as Schumer’s threat,  a supposed theft, and a series of security lapses and problems.

The supply of bitcoins is said to be limited, or to reach a limit, due to the rising costs of generating a bitcoin. The demand in part depends on the demand for anonymity in transactions. Price clearly depends on the potential for the entry of other similar monies in the future. That could drive prices down sharply. One may not be able to counterfeit a bitcoin but perhaps one can devise close substitutes. I don’t know enough about the technology to say, but there surely is an incentive to produce a substitute even if it’s only the publicity from doing it.

Share

5:07 am on June 29, 2011