Bitcoin e-money and the bubble

Nowadays, 'Bitcoin' is a highly pronounced word in the cyber world, which is an e-currency traded through some stock exchanges. Its price rose to $935 by almost 750 per cent from its base $123 just within two months, from 1st October 2013 to 1st December 2013 and still the price expectation is higher and higher.  But, we have to dig deep to understand its fundamental justification of recent price soaring.
On November 2008, Santoshi Nakamoto published a paper in a private cryptography mailing list. The paper explained his new idea about this new e-money or cryptocurrency. On January 3, 2009, the journey of the cryptocurrency had begun by creating the first 50 Bitcoins. Cryptocurrencies gradually gained attention of the media and the public within the first couple of years of existence and especially in 2013 when interest has rapidly increased for the rapid rise of Bitcoin.
Like Bitcoin, there are lots of other such types of cryptocurrencies such as Litecoin, Namecoin, Peercoin etc. with a little difference from each other. The creators of these currencies are claiming that these are most secured forms of transactions and the future medium of transactions. But, some cyber-criminals have already stolen $1.3 million worth so-called secured Bitcoin from inputs.io, a company that lets its users store the digital currency in online wallets. As Bitcoin is not backed by any government or any central bank or any enterprise, this kind of criminal offence is not considered 'criminal' and so, no one has to face any kind of law. Besides, creators claim that no central bank could control the circulation of these currencies which lead these to pure demand-supply and speculation- based currencies without any universal value. There is absolutely no way to find the worth of these currencies; the prices of these will keep rising as long as someone new can be convinced to buy.  
Peter Schiff, author of 'Crash Prof' and CEO of the Euro Pacific Capital Inc, compared the price soaring of Bitcoin with tulip mania version 2.0.  'Tulip mania' was a 16t-century bubble. In 1635, the price of certain kind of tulip reached 1,615 florins, where the prices of four bulls and 1,000 pounds of cheese were only 480 florins and 120 florins respectively. The price of a tulip, however, kept soaring to a level the next year that one tulip of a rare species was sold at 4,600 florins.  Eventually someone woke up and the bubble burst, the mania of 'sell' was soon as much as the mania of 'buy'. The price then crashed and hundreds of thousands of people went bankrupt.
The main reason behind the burst of tulip bubble was the unavailability of enough intrinsic value within a tulip and so tulip failed on its way to becoming a currency. In the same way, Bitcoin doesn't have the value and the only reason people are willing to pay money for it is because other people are willing to as well. As long as the Bitcoin is not acceptable by major governments or central banks and the robbery of the Bitcoin is not considered a 'criminal offence', it will remain speculative.
The recent volatility and price swings of Bitcoin is nothing but an over-expectation by speculators and the price could keep rising till the buyer agrees to buy it at higher prices. This is just a speculative bubble which will definitely burst but it is difficult to say when.
The writer is a Senior Analyst in the Alliance Capital Asset Management Ltd.
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