Bitcoin gold rush - evangelists or selfish revolutionaries?
Supporters of the virtual currency boast of no controls and no victims - but do they just want to get rich quick?
AS FINANCIAL regulations increase by the day, so do the ways around them. The most radical yet is the virtual currency known as the Bitcoin. Instead of real money, virtual cash is stored in an online wallet lodged in the hard drive of a computer.
Created four years ago by an anonymous computer scientist - or possibly a group - using the pseudonym Satoshi Nakamoto, the Bitcoin was conceived as a way of transferring money outside traditional banking systems, thus circumventing regulatory controls.
The currency has become so popular - the exchange rate reached a peak of $1,240 per Bitcoin last weak - that even JP Morgan is getting in on the act and setting up a rival, patented computerised payment system which, like the Bitcoin, ensures account holders' names and account information cannot be disclosed.
As the Financial Times reported yesterday, JP Morgan's move towards a virtual currency actually dates back to 1999 when the bank made its first patent application in an effort to compete with the credit card monopolies in the increasing internet market.
The aim was to create an alternative commercial system of payment that would also guarantee the anonymity of its users. Rather than avoiding regulation, JP Morgan is responding to the need to make payments not only faster but more secure.
Bitcoin goes a few steps further. It is not just a competing currency system, it's an entirely alternative one that defies government control altogether. In this respect, Bitcoin has a special attraction - a revolutionary one.
Bitcoin 'evangelists' are pitting themselves directly against the governments who impose restrictions on the financial sector. In the words of one Bitcoin evangelist, "Government is coercion and force. You don't fight coercion with coercion, you just ignore it. Bitcoin allows you to ignore it." In other words, ignore the rules and they won't exist.
This credo is reminiscent of political protests in the 1960s. But whereas the principal concern of the Sixties protesters was to make the world a better place, "getting rich" seems to be the driving force behind the Bitcoin movement. The manic excitement is catching. "It's a hot tech start-up… It's a gold rush. It's a land-grab. It's the Wild West." Basically, it's a free-for-all.
Unlike those protests that focus on people's welfare, the attacks on government come across as the self-centred grumblings of teenagers who resent being dependent on their fathers and having to abide by house rules as long as they live under the same roof.
In the US, the Bitcoin is closely allied to the libertarian movement. The rhetoric around it extols it as the new - unregulated - frontier. As such, it represents the American dream of bucking the system and striking out on one's own - an ideal harking back to the American Revolution.
But there is a difference between the bravery of conquering new land for the benefit of the country and the actions of those who strike out as an act against authority, while getting rich at the same time.
Peter Thiel, the American billionaire founder of PayPal and supporter of the Bitcoin, takes the dream of independence to its ultimate extreme, envisioning creating an island in international waters, free from any single country's regulation, where "the next generation of pioneers can peacefully test new ideas for government". But is this a vision of independence or of narcissistic defiance and isolation? And how can new ideas for government be developed in such a paranoid state without creating yet another tyranny?
The term 'evangelist' used for Bitcoin supporters is a giveaway, signifying a quasi-religious cult that defies established religions in favour of a new truth. Perhaps what is most important about the Bitcoin is not so much how and whether it works in practice, but the belief system it stands for.
Bitcoin evangelists promote the illusion that there are no victims, as there are in traditional financial systems. One investor explains: "It has some of the emotional aspects of a Ponzi scheme. Without needing to steal from someone." Everything is reduced to a level playing field with no winners or losers.
But the volatile market value of the Bitcoin suggests otherwise. The sharp currency price rise in March was attributed by some to the bank bailout in Cyprus and the ensuing crisis of confidence in high street banks. While this may have been a factor, we have no way of knowing what other factors may have been at work. Rather than throwing cold water on the currency's reliability as a means of exchange, it has perversely stimulated even greater interest from investors - not from investors who want to understand the impact of their investment but from those who want the quickest results. No victims?
Bitcoin evangelists also boast that it is not subject to the constraints of government control - or of reality for that matter. It represents a self-regulated monetary system that is not dependent on external structures and therefore - at least in its founders' minds - not susceptible to the corruption of power.
The irony of this logic is that it is the loosening of regulatory controls - such as the repeal of the Glass-Steagall Act in 1999 - that is now blamed for the 2008 banking crisis and ensuing world recession.
The analogy with the Ponzi scheme is dangerously apt. In his book, Minding the Markets, the psychoanalyst David Tuckett sets out the idea of a 'phantastic object' (e.g. certain derivatives) that sweeps the group along like the mirage of an oasis in the desert.
The 'phantastic object' is an idealised, exciting thing that promises to satisfy our deepest desires. The more arcane the object, the greater will be its appeal because it is not subject to the rules of logic or of reality, and this allows us to project our unconscious wishes onto it.
As in the rush to invest in inscrutable derivatives, the value of the Bitcoin is worth only as much as other people's desire to possess it. We have yet to see whether JP Morgan's version will be less 'phantastic' and more realistic.
Coline Covington is a London-based Jungian analyst. 'Shrinking the News', a collection of her articles for The Week, is published this week by Karnac Books. ·