Former chairman of the U.S. Federal Reserve, Alan Greenspan, created quite a media stir this past week when he joined a growing chorus of financial traditionalists in criticizing bitcoin’s credibility.
In an interview with CNBC, Greenspan likened bitcoin to an early American form of money known as “Continental currency” which had its genesis in 1775 before becoming worthless by 1782. This paper-based legal tender which was employed during the American Revolution was not backed by any sort of commodity such as gold.
Seeming to suggest that bitcoin will likely suffer a similar fate, Greenspan noted that a “significant share” of Continental currency was still utilized to create “real goods and services,” even though it exhibited no ultimate worth.
“Bitcoin is really a fascinating example of how humans great value, or estimate or judge value. And it’s not always rational. You cannot tell me you can create out of nothing, something that has a medium of exchange value. It’s not a rational currency in that sense. But that does not mean that it will not trade, because as so long as people believe they can sell it to somebody else or unload it on somebody else that’s all you need to create a market.”
Concluded Greenspan, “And look, human beings buy all sorts of things that are not worth anything, but they do it anyway. People gamble in casinos when odd are against them. It has never stopped anybody.”
The timing of Greenspan’s comments come at a time when the value of bitcoin is skyrocketing to new heights, having gained thousands of dollars in value over the past couple of weeks. It also comes as some traders and bankers reportedly will receive some of their year-end bonuses in bitcoin.
Greenspan’s comments led to a flurry of responses on Twitter. Here are a couple:
Park Lane Investco @car_coin Dec 6 “How can Alan Greenspan deem @Bitcoin worthless when it trades dollar-for-dollar with an ounce of Gold and doesn’t realize that digital currency is here to stay in the new century #oldschool“
As an aside here is a beautifully written piece entitled “Bitcoin and Intrinsic Value: A Layman’s Response to Alan Greenspan” from back in 2013.
It should help to clear up some of the confusion.