Nearly a year ago, Lawfare bought a bitcoin -- a piece of digital currency that exists only by virtue some rather complex and elegant mathematics but without the charecteristic of having been issued by any national bank. On the day we bought the coin, its value was roughly $316/coin. Since that time the value has fluctuated some, but mostly languished in the doldrums.
No longer. As the New York Times reports, the price spiked recently to as much as $500/coin and is now trading in the $400 range -- roughly a doubling in value in the last month or so. If we were minded to, Lawfare could sell the coin for a clear profit.
But we didn't buy the coin to make money (at least I don't think we did). We bought it as a way of exploring some of the law and policy issues surrounding the bitcoin phenomenon. For the most part those issues appear to be "anti-security" impulses -- for example, the existence of bitcoin allows for pseudononymous transactions that can obscure malevolent conduct, and that is of concern to law enforcement and intelligence operatives. This anti-security aspect of bitcoin is a natural consequence of the quasi-libertarian, anti-statist nature of the technology.
But the spike these last few days suggests that their might be some other "pro-security " aspects to bitcoin -- somewhat surprisingly so. As the Times reports, alot of the run up in value of a bitcoin can be attributed to Chinese speculation:
There has also been a surge in demand for Bitcoin in China, where the new interest is being explained by a number of factors, including the drop in the stock market there, as well as the emergence of a new Ponzi scheme tied to Bitcoin. The price of Bitcoin has been rising faster on Chinese exchanges than elsewhere in the world.
This is not surprising in and of itself. Bitcoin is a sensible hedge for some against economic uncertainty. Just as some of the elite in countries with variable economic policies protect the value of their investments by purchasing land or holding their accounts in more solid currencies, like the dollar, we might expect some of those same people to see greater economic security in holding their value in bitcoin rather than, say, the yuan. Recent economic tumult in China -- from the stock market variablity, to slowing growth and exports, to the prospect of capital controls -- are a sound reason to headge against a loss in value.
These avowedly economic factors led me to wonder if there might not be another piece of the puzzle at work as well. It seems to me that bitcoin may well become a storehouse of value for those who are concerned not just about the economic stability of a market but also with the political stability of the market. If you fear political disruption or overly adventerous foreign engagments you might choose to protect your investments, just as you might if you feared financial disruptions.
Put more directly, is the run-up in bitcoin value (and especially that portion attributable to Chinese speculation) possibly a response by Chinese elites to the geopolitical instability that they see in Chinese adventurism (see, e.g., South China Sea)? Are Chinese bitcoin holders using bitcoin as a hedge fund against that same instability? Might bitcoin prices even be a leading indicator for expecations about growing national security tensions?
I frankly expect the answer to these questions is "no." The trading market in bitcoin remains too thin to be that sensetive and it is too undifferentiated to be able to isolate Chinese national security effects from, say American ones, or, for that matter, from the likely more salient economic instability. But it is fun to imagine Jack Ma (the wealthy head of Alibaba) shifting some of his investments to bitcoin because he is worried about a US-China confrontation in the South China Sea.