Bitcoins probably won’t become a popular method of exchange as competing “crypto-currencies” crowd the market, confusing merchants and sending them back to credit cards and cash, Offit Capital said.
“Why should I pay $1,000 for a Bitcoin when I can acquire a Bbqcoin for $10 or a Hobonickle for 10 cents?” Todd Petzel, chief investment officer of the New York-based private wealth-management firm, said in a report yesterday. “They are all costless to produce, and consequently ultimately worth as much.”
Bitcoins, which aren’t regulated by any country or banking authority, jumped 80-fold from a year earlier to about $1,200 last week. They traded at $1,046.24 at 7:06 p.m. yesterday in New York on online exchange BitStamp. The currency, which exists as software in an open online system, gained credibility after law enforcement and securities agencies said at U.S. Senate hearings last month that it could be a legitimate means of exchange.
Bitcoins fall short as a viable currency because there is a finite supply, Petzel said. The software that creates Bitcoins dictates there can be only 21 million in circulation.
“A Picasso drawing could sell for one Bitcoin and a Starbucks latte for one one millionth of a Bitcoin,” he said. “An absolute fixed quantity of currency in circulation is a recipe for extreme deflation and all the problems that come with it.”
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