Is Bitcoin Creating Its Own Demand?

Federal Express created its own market in 1982 with the slogan “When it absolutely, positively has to be there overnight.”  Until that point, Americans didn’t know they needed to even have the option of overnight delivery.  But that genius branding by ad agency Ally & Gargano started the launch of a company that now has current annual revenues of $45 billion.

Artist’s rendition of bitcoin

More recently, consider the iPod.  Some consumer did not wake up one morning and say “Hey, I need a small, portable device that can hold thousands of songs that I can easily carry in my pocket.  Maybe I should talk to those people at Apple and see if they can hook me up.”  No, Apple, similarly to Fed Ex, created the demand for a product that has become a huge financial success.

I bring up these examples to possibly explain the growing demand for bitcoins, that virtual currency that is sweeping the world with great fervor.  If you’re not familiar with them, you should learn about them.  (Check out my blog from last week for starters.)  In a nutshell, bitcoins are virtual currency that you can purchase with traditional monies or you can acquire through virtual mining, which, in this case, means solving complex algorithms.  Solve the algorithm and get a coin.  Five years ago these coins were worth nothing, however today they are worth $500 with speculation that their prices could go anywhere from $10,000 each to even more.  So what’s fueling the price?DrSeuzz and Bitcoin Miners

China is buying bitcoins like crazy, and the U.S. is beginning to take notice.  In fact Congress met a few days ago for an informational session on them.  Their consensus opinion was that these coins can’t be regulated and they are not illegal.  That’s good news for Sapan Shah, a Subway restaurant owner in Allentown, PA, who recently started accepting bitcoins.  Bitcoins are not backed by a gold standard or anything like that…never has been, unlike the U.S. dollar.  Is the growing acceptance of bitcoins by merchants helping to drive up the price?  Is the mystery of bitcoin the driving force?  I’d like to hear your opinion on what is driving the demand for this currency that has created its own demand.


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