Last week was tumultuous for bitcoin, as Chinese authorities announced plans to ban the cryptocurrency’s trading in the country.

I am not surprised that Chinese authorities are acting to put a lid on bitcoin BTCUSD, +2.46% trading. What is surprising is why more governments, including the U.S., are not doing the same.

The CEO of the largest bank in the U.S., Jamie Dimon, labeled bitcoin as a fraud last week. Ray Dalio, the head of the world’s largest hedge fund, says the same. These financial titans have the ears of President Donald Trump and Fed Chair Janet Yellen, so if fraud on massive scale is going on, U.S. authorities should act.

Bitcoin’s price declined from about $5,000 to a low of around $3,000 last week — as of Monday the cryptocurrency traded around $4,000. In China, bitcoin sold off more sharply on yuan exchanges than it did in U.S. dollar DXY, -0.11%  terms is not surprising, as traders may not be able to get their bitcoins out of China before the ban goes into full effect, so there has to be a discount in yuan-denominated bitcoins (See this chart).

I looked at bitcoin several years ago, concluding it was a scam. I even posed the question in one of my weekly commentaries: "Is bitcoin a bubble or a scam?" One colleague astutely noted that "It's a scam within a bubble." That was in early 2014. While bitcoin then crashed from about $1,000 to about $300 in 2014, bitcoin recovered. This year it has run up from about $1,000 six months ago to about $5,000 before its latest tumble.

The bitcoin sales pitch is to get more people into a finite amount of bitcoins, with a cap expected to be around 21 million bitcoins. There are about 17 million bitcoins now; the algorithm is designed to increase that cap slowly before it is exhausted. (The number of bitcoins increase by "mining"; for details, see this 2014 primer: "CNBC Explains: How to mine bitcoins on your own").

The sheer absurdity that humans will bid for a line of code on an exchange in ever larger numbers and see its price skyrocket is hardly unprecedented. From tulips in the Netherlands in 1635-37, to South Sea Company stock in Britain in 1720-22, to the Wall Street Crash in 1929 driven by unlimited leverage on the exchange in combination with a financial system credit bubble; the list goes on and on (see these charts).

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Very informative
05-03 04:23 by Liam
The same day Trump spoke with Reynolds
01-29 04:43 by Yavor737347
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