The cost of a bitcoin is now more than the cost of one ounce of gold: does this demonstrate the supremacy of virtual over reality, or does it show that investors have lost the plot?In November 2013, when the cost of a bitcoin went within a whisker of $1,000, some said it proved that the world was changing, others said it proved that the world had gone mad. Within 18 months the price was down to $225, it had fallen in value by 80 per cent, it seemed that the madness hypothesis was proven right.

But as a late Lord Rothschild said: “buy when there is blood on the streets.” It was during a war with France. The Lord had said it was a time to buy, but when a companion responded saying “but the streets of Paris are covered in blood,” the Lord Rothschild said: “Buy when there is blood on the streets, even when some of the blood is your own.”

Some people say “if only I had bought bitcoin in 2010, when it was trading at less than ten cents,” but never mind. If you had bought at any time during the first eight months of 2015, you would now be sitting on a 600 per cent profit.

As an investor might have said during the aforementioned war with France, “not bad for a game of soldiers.”

Bitcoin has surged for multiple reasons: but there is one big problem.

For one thing, it has been very popular with people trying to pump money out of China.

For another thing, at a time when banks charge us an arm and a leg to transfer money from one currency to another, a bitcoin provides the option of transferring money between countries for virtually zero cost.

Bitcoin has also gained, and for two quite different reasons, from Donald Trump.

Investors who fear for what President Trump means, buy into bitcoin as a form of security. Investors who love President Trump have bought into bitcoin in anticipation of a freeing up of regulation.

The bitcoin is also a hit with libertarians, who love the idea of a form of money that is free from control by central banks.

Many of the Silicon Valley types love bitcoin precisely because of the libertarian dream.

Central bankers don’t like bitcoin, as they can’t control it, but they do like the technology behind bitcoin: blockchain, as the distributed ledger provides a potential mechanism for making it very hard to illegally copy a digital file – whether that file relates to digital money, digital music, digital movies or even digital votes in an election.

But what a lot of people like about bitcoin is its limited supply. One day, its supply will stop rising – it’s a key characteristic of the currency. And limited supply, goes the narrative, means price could just keep going up.

One day, bitcoins may be rarer than gold, maybe that day is now.

The snag, however, relates to the very characteristics that so many people love about it.

Forward wind the clock a few years, and let’s say that technology creates the potential for us to live in an age of plenty, but instead it creates massive inequality. A potential solution might be for central banks to print money and for governments to use this to fund some form of universal basic income or tax credits.

In short, bitcoins make people’s QE, or helicopter money as it is also called – in which new money is used to stimulate an economy impossible.

The bitcoin, just like gold, has the potential to be great for the few who own it, but actually, it is fundamentally a concept that will only ever serve the so-called elites – and in this Trump era, we know that the pitchfork waving non-elites are a potent force.

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