To call Bitcoin the biggest and most obvious bubble in modern history may be a disservice to its surreality.
The price of bitcoin has doubled four times this year. In early January, one bitcoin was worth about $1,000. By May, it hit $2,000. In June, it breached $4,000. By Thanksgiving, it was $8,000. Two weeks later, it was $16,000.
This astronomical trajectory might make sense for a new public company with accelerating profits. Bitcoin, however, has no profits. It’s not even a company. It is a digital encrypted currency running on a decentralized network of computers around the world. Ordinary currencies, like the U.S. dollar, don’t double in value by the month, unless there’s a historic deflationary crisis, like the Panic of 1837. Instead, bitcoin’s behavior more resembles that of a collectible frenzy, like Beanie Babies in the late 1990s.
But defining and identifying bubbles is harder than it seems (kind of like defining bitcoin). The term technically refers to an asset whose price dramatically exceeds its intrinsic value. But who determines price and value, anyway? Those aren’t scientific concepts with formulas, like gravity or the length of a hypotenuse. They are the co-creation of buyers and sellers whose needs and attitudes are constantly changing.