Bit O’Money: Who’s Behind the Bitcoin Bubble?

Like most nifty ideas that germinate in the tech world, the odds are against Bitcoin ever achieving widespread use. Nevertheless, there are plenty of believers. “It’s only going to take one rich Arab sheik to throw some pocket change at it,” opined Mr. Wagner, who has become an unofficial Bitcoin spokesman after creating a Bitcoin-for-dummies website, Bitcoinme.com. He also hosts The Bitcoin Show, a web TV series on his network; organizes the monthly New York Bitcoin Users Meetup, which has 62 members; and is planning BitCon 2011, the first Bitcoin conference “and world expo,” which will take place in New York in August.

He doesn’t give investment advice, he’s careful to say. But he’s bullish.

“It’s a bubble, but it’s an unbreakable bubble, one that is just going to keep growing and growing and growing,” he said. He had predicted Bitcoins would be going for $10 each by the end of May; the price hit $9.999 on June 1. He now says it will hit $100 by the end of the month and $10,000 within one year. That nutty-sounding forecasting recalls dot-com bubble boy analyst Henry Blodget’s famous 1998 prediction that Amazon’s pre-split stock would double to $400, which happened less than a month later. (The call earned him a job at Merrill Lynch, but his public cheerleading of tech stocks eventually led to a $2 million fine for securities fraud.)

“It’s kind of like the early days of the dot-com,” Mr. Wagner said. “People heard about this thing called the Internet and they didn’t know what it was, didn’t know what to do, so they bought every [stock] that ended in a dot-com and of course they all lost their shirts. This is kind of like this, but you actually can buy a piece of it, like the Internet but you can own a piece of it.”

We asked him how many Bitcoins he owned.

“That’s like asking me my bank balance,” Mr. Wagner replied. “People have to realize that Bitcoin is money and in America it’s not polite to ask people how much money they have.”

By this point in our reporting, Betabeat wanted in. “Can I have one of your Bitcoins?” we pinged a hacker friend we knew had accumulated a nice pile, worth almost two grand at today’s prices. “Hell no. You should have asked me two weeks ago. I was giving them out,” he typed back from a start-up office in San Francisco. “Current plan is to hold out until they are $100 a coin, then sell 20 percent. After that I’ll wait till it hits $1,000 a coin and sell another 70 percent.”

“I could have been doing this many years ago, and I would have had a billion dollars!” Alex Spitzer, a Boston-based programmer told us with wry regret. He read about Bitcoin in 2009, but didn’t get into mining until recently.

Even so, Mr. Spitzer is mindful of the groupthink that pervades his industry. “The problem with the Internet is that it’s too easy to find people like you—like-minded, high-minded kind of nonsense. The more you read these sites and these forums, the more people will tell you that Bitcoin is, like, the best thing ever.”

In fact, hardcore Bitcoin enthusiasts believe the currency could change the world for the better. In some parts of the world, it’s impossible for small businesses to take electronic payments, said Jered Kenna, one of the founders of TradeHill, which launched last week as the first competitor to Bitcoin exchange Mt. Gox. With Bitcoin, businesses can start taking online orders immediately, no bank account, no credit cards, no transaction fees required. Micropayments also become practical, he told Betabeat from the office in Chile where he and his co-founder, Adam Stradling, a New York expat, had been working nonstop through the weekend to keep the site up despite massive trade volumes in the wake of Digital Black Friday.

“I grew up a computer nerd and I looked at it from a technical aspect and I said, wow, this could actually work, but the general population just won’t see it,” Mr. Kenna said. “I underestimated people. Then I saw it growing. I said, you know, I could help this, and I could make a lot of money at the same time.”

But Bitcoin is an experiment, he said. “Don’t bet the house.”