America’s foremost authority on bubbles, former Fed Chairman Alan Greenspan, weighed in on both Bitcoin and gold today in an interview for Bloomberg Television.
Bask in the glory:
Greenspan on whether Bitcoin is a bubble:
“I guess so. Let me say that currencies to be exchangeable have to be backed by something. When we had – when we were on the gold standard, gold and silver had intrinsic value and people would be willing to exchange their goods and services for gold or silver and wouldn’t ask any questions of where the monies came from. Alternatively, when we went into currencies, it was the backing off the issuer of the currency. In other words, if some individual had great credit standing, his checks could circulate as money. But the question is I do not understand where the backing of bitcoin is coming from. There is no fundamental issue of capabilities of repaying it in anything which is universally acceptable which is either intrinsic value of the currency or the credit or trust of the individual who is issuing the money, whether it’s a government or an individual. Individuals with very high net worth and who have great reputations could create their own currency because people would be willing to exchange their checks with others probably at par. That is not the case with bitcoin.”
On whether Bitcoin could be the new gold:
“No. Well, see that – it has to – it has to have intrinsic value. You have to really stretch your imagination to infer what the intrinsic value of bitcoin is. I haven’t been able to do it. Maybe somebody else can. But if – you asked me is this a bubble in bitcoin. Yeah, it’s a bubble.”
On what has changed with investors’ perception about gold this year:
“Well first of all, remember we used to be at $35 an ounce. And then even several years ago we were well under $1,000 an ounce now we’re $1,2000 or thereabouts. And to be sure, we’ve come down a bit but it’s after a very significant rise. So the issue here is that the reasons for buying gold were, one, fears of significant inflation first of all which didn’t materialize, and just generally the notion that inflation looks to be relatively stable for the indefinite future and that therefore the hedging aspects of gold are really not that all necessary at the moment. And so what you’re getting is clearly this type of problem which one would ordinarily expect when the – the basic reasons for holding gold are not – not that strong. My – I think that we’re probably at a gold price now which is not all that different from where it probably would be considering that it’s, on the one hand a commodity, copper, on the other hand a monetary asset like the Swiss franc used to be before they fixed it against the euro.”