Both Bitcoin and Facebook have been making headlines in financial news over the past week, albeit for greatly different reasons.
Bitcoin has seen its value decimated by as much as 50% as a result of the MtGox closure. At the same time, it has still gained over 3000% in the course of a year.
For its part, after a disastrous IPO, Facebook has gained more than 150% over the past 12 months, now trading near $71. In its latest move, it acquired WhatsApp for $19 billion, mostly with its own stock. Investors initially were concerned about what seemed such an exorbitant purchase price. The sentiment was short-lived and reversed, sending the stock to new record highs.
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The main parallel drawn between the two is that both rely on a large, dedicated network of believers to maintain and grow value. Without such a network, they are rendered effectively worthless. According to one extreme view, they are indeed worthless, really a game of musical chairs, and a view recently expressed by Russia’s Central Bank on Bitcoin.
Others have commented that both face the threat of having their bubble burst if a more popular social network (recall Myspace?) comes along or a more robust cryptocurrency is developed.
However, while Facebook faces a finite limit on the number of users it attracts, and by extension the magnitude of value it can produce for its paying customers, Bitcoin’s only such limitation is the magic number of 21 million, the total number of coins that can be mined. But in terms of the value of these coins, there is really no upper limit if they can one day morph into a mainstream or even the universal currency.