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Greenspan: Bitcoin Could End Up Like Colonial American Currency—Worthless

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Greenspan: Bitcoin Could End Up Like Colonial American Currency—Worthless
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The price of bitcoin soared above the $10,000 mark last week only to cross the $13,000 level Wednesday. Naturally, the debate over bitcoin's true value will intensify in 2018 and beyond with some experts expecting the digital currency to hit $40,000 and others expecting it to reach zero.

The Expert

Former Federal Reserve Chairman Alan Greenspan.

The Strategy

Bitcoin will likely suffer the ultimate fate as currency issued during America's Colonial past: become worthless.

The Thesis

The Continental currency was issued in 1775 but ended up becoming worthless by 1782, Greenspan said during an interview with CNBC Wednesday. The Continental currency was legal tender whose value was backed by the amount of paper notes which were available and the corresponding demand, rather than the backing of a physical commodity like gold. However, to finance the Revolutionary War, incremental amounts of Continent currency were being issued -- much like a new supply of bitcoin is entered into the market on a daily basis.

"In the Continental and the greenback during the civil war, in all cases, the amount of fiat currency kept rising and it is very difficult to tell to what extent bitcoin is fundamentally different from that," he said. "But what I am saying is that there are very similar similarities."

Granted, the Continental currency was being used to trade for goods and services, but this is merely human nature back then as it is today, Greenspan said. After all, humans "buy all sorts of things that aren't worth anything." Moreover, people accept gambling in casinos despite the odds clearly stacked against them.

The value of bitcoin can't be negative, which implies one of two things, Greenspan concluded: It can either be zero or greater than zero.

Related Links:

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On This Day In Market History: Alan Greenspan's Famous 'Irrational Exuberance' Speech

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