Bitcoin: this is what a bubble looks like

Not if, but when, the bubble will burst.

This is what a bubble looks like:

That's the market capitalisation of Bitcoin, an innovative fiat currency which relies on some fancy cryptography to create a perfectly decentralised and unhackable store of value. The graph shows the total value of all bitcoins in circulation — and it's currently peaking at a little over half a billion dollars.

In a sense, Bitcoins are the ultimate fiat currency. There is absolutely nothing valuable about them except the extent to which others are prepared to take them as payment for goods and services. The willingness relies on a certain level of trust that the currency will stay a useful store of value, measure of exchange and unit of account in the near future; but whereas normal currencies derive the trust from the fact that they are backed up by respectable governments and independent central banks, Bitcoin derives it from a complex, and essentially permanent, set of rules which issue new bit coins at a steadily declining rate until the early 22nd century, when the total quantity of bitcoins in circulation will be fixed forever.

Currently, bitcoin is very useful for fringe-legal transactions, and as a digital-native currency, it has potential to be used in a wide array of web services. But that's not why the value of the total economy has more than tripled since January. For that, look to lessons we learned over four hundred years ago.

The South Sea bubble is one of the most famous boom-and-bust cycles in history. At the peak of the madness, famously, a huckster appeared public advertising stock in "a company for carrying out an undertaking of great advantage, but nobody to know what it is". Naturally, he disappeared soon after.

But looking back at contemporary sources reveals something else which is just as important: very few people caught up in the madness thought that they were buying something innately valuable. These weren't naïve investors spending exorbitant sums on stock which they thought would vest unrealistic rewards; instead, they knew full well the bubble they were buying into, but thought that they could sell out of it at profit before the whole thing came crashing down. Some did; but inevitably, many others failed.

Much the same seems to be at play in the Bitcoin ecosystem. It's not just people like Hugo Rifkind, who accidentally made £41 from his foray into bit coin investing; Timothy Lee, a writer for Ars Technica, holds nearly a tenth of his investment portfolio in bitcoin, having bought in last January and seen a ten-fold increase in value.

But while there's been a massive increase in bitcoin price, there's not been anywhere near an equivalent increase in the currency's use. A glance at, which displays all transactions, shows that the vast majority of bitcoin transactions—by number, if not by value—are made at the site SatoshiDICE, a gambling organisation. In fact, the ever-increasing value of bitcoins is like to act as to depress the bitcoin economy, as people decide to hold on to their money rather than exchange it for services, knowing that it will surely increase in value.

The crash will come. At the heady peaks it's at right now, only the slightest spark will be required to turn the trend negative. In 2011, the previous bubble burst when Mt Gox, then the most popular bureau d'exchange for the fledgeling currency, was disastrously hacked. This time, I doubt it would take that. The peaks are so high, and so many people have so much money "invested" in the currency, that the rush to be the first out of a bear market will be vicious to behold.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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David had taken the same tablets for years. Why the sudden side effects?

Long-term medication keeps changing its appearance – round white tablets one month, red ovals the next, with different packaging to boot.

David had been getting bouts of faintness and dizziness for the past week. He said it was exactly like the turns he used to get before he’d had his pacemaker inserted. A malfunctioning pacemaker didn’t sound too good, so I told him I’d pop in at lunchtime.

Everything was in good order. He was recovering from a nasty cough, though, so I wondered aloud if, at the age of 82, he might just be feeling weak from having fought that off. I suggested he let me know if things didn’t settle.

I imagined he would give it a week or two, but the following day there was another visit request. Apparently he’d had a further turn that morning. The carer hadn’t liked the look of him so she’d rung the surgery.

Once again, he was back to normal by the time I got there. I quizzed him further. The symptoms came on when he got up from the sofa, or if bending down for something, suggesting his blood pressure might be falling with the change in posture. I checked the medication listed in his notes: eight different drugs, at least two of which could cause that problem. But David had been taking the same tablets for years; why would he suddenly develop side effects now?

I thought I’d better establish if his blood pressure was dropping. I got him to stand, and measured it repeatedly over a period of several minutes. Not a hint of a fall. And nor did he now feel in the slightest bit unwell. I was stumped. David’s wife had been watching proceedings from her armchair. “Mind you,” she said, “it only happens mid-morning.”

The specific timing made me pause. I asked to see his tablets. David passed me a carrier bag of boxes. I went through them methodically, cross-referencing each one to his notes.

“Well, there’s your trouble,” I said, holding out a couple of the packets. One was emblazoned with the name “Diffundox”, the other “Prosurin”. “They’re actually the same thing.”

Every medication has two names, a brand name and a generic one – both Diffundox and Prosurin are brand names of a medication known generically as tamsulosin, which improves weak urinary flow in men with enlarged prostates. Doctors are encouraged to prescribe generically in almost all circumstances – if I put “tamsulosin” on a prescription, the pharmacist can supply the best value generic available at that time, but if I specify a brand name they’re obliged to dispense that particular one irrespective of cost.

Generic prescribing is good for the NHS drug budget, but it can be horribly confusing for patients. Long-term medication keeps changing its appearance – round white tablets one month, red ovals the next, with different packaging to boot. And while the box always has the generic name on it somewhere, it’s much less prominent than the brand name. With so many patients on multiple medications, all of which are subject to chopping and changing between generics, it’s no wonder mix-ups occur. Couple that with doctors forever stopping and starting drugs and adjusting doses, and you start to get some inkling of quite how much potential there is for error.

I said to David that, at some point the previous week, two different brands of tamsulosin must have found their way into his bag. They looked for all the world like different medications to him, with the result that he was inadvertently taking a double dose every morning. The postural drops in his blood pressure were making him distinctly unwell, but were wearing off after a few hours.

Even though I tried to explain things clearly, David looked baffled that I, an apparently sane and rational being, seemed to be suggesting that two self-evidently different tablets were somehow the same. The arcane world of drug pricing and generic substitution was clearly not something he had much interest in exploring. So, I pocketed one of the aberrant packets of pills, returned the rest, and told him he would feel much better the next day. I’m glad to say he did. 

This article first appeared in the 13 March 2018 issue of the New Statesman, Putin’s spy game