[Image credit: your humble author.]
In my world, currency is predominantly virtual. I carry and use very little cash. Wages are direct-deposited to a bank account. Credit-card purchases assume the existence of funds on deposit. Transfers between accounts and payments to creditors happen according to pre-defined schedules or with a single keystroke. The reason this system works is that all the transactions are denominated in dollars, the legal tender currency of the USA. No one can refuse my dollars.
In contrast, anyone can buy bitcoins, but merchants can choose whether or not to accept them as payment for goods and services. Bitcoin is not legal tender in any jurisdiction. It is a return to the barter system. When was the last time you paid for a latte or concert tickets with frozen orange juice futures? (Of course you wouldn't; according to the IRS, you would be forced to pay capital gains tax on the value of the bartered property at the time of redemption relative to the time of acquisition, just as it ruled for bitcoins.)
But why is Bitcoin like the Beanie? The answer is simple. A small group of individuals is slowly convincing buyers to exchange dollars for what amounts to "investment grade" transaction fees. And only Ty Williams could have convinced millions of buyers to exchange dollars for "investment-grade" plush toys. As a result, he has billions of dollars stored in accounts around the world (liquidity), while the storage locker space devoted to Beanie Baby collections without a viable exchange market is an industry unto itself. Bitcoins may not offer liquidity, but at least they don't take up space.
Not convinced? Business Insider summarized essential elements of the Beanie Baby phenomena. Those that apply equally to Bitcoin include:
- Privacy. Despite world-wide fame, Ty Williams has only given a handful of interviews, creating a sense of mystery about the Beanie Baby brand. No one knows definitively who created Bitcoin. The commodity's reported inventor, Satoshi Nakamoto, denies the claim, deepening its exotic allure.
- Scarcity. Ready availability undermines collectability. Williams controlled customer demand by creating a shortage of toys. Mining new 25-unit blocks of bitcoins requires banks of computers running complex algorithms 24 hours a day, at high cost with no guarantee of success.
- Surprise. Without warning, Ty would retire a Beanie Baby line. When an animal was retired, all production of it was halted, making it instantly more valued and highly desired. Without warning, stories appear about famous individuals or institutions that are investing in bitcoins — the Winklevoss twins and Fortress Investment Group, to name two — giving the commodity greater credibility and buzz to drive up value.
- Death Rumors. Williams leaked a (false) rumor that Beanies "might be retired" in 1999, setting off a buying frenzy. Bitcoin exchanges are unregulated and unstable. When Mt. Gox collapsed, its bitcoin holdings were lost. Whether sudden disappearances make the remaining supply more valuable or more suspect is not yet clear.
Title: Real Life Hits
I've always been ambivalent about the vibraphone as an instrument. Gary Burton is among the few vibists in my album collection. This title, containing two Carla Bley compositions and featuring Bley's paramour Steve Swallow on bass, is among Burton's best. "Like the cover art, it is something of a collage that makes for a complete portrait of a time and place, a snapshot with a living soundtrack. This is real life." (ECM Reviews) Give a listen.
© 2014 Thomas G. Dennehy. All rights reserved.