The bitcoin crash, an indicator of capitalist speculation

Lutte Ouvrière workplace newsletter
May 24, 2021

On May 19, the value of the bitcoin and all other cryptocurrencies crashed. One trillion dollars went up in smoke.

The bitcoin was invented a decade ago by computer scientists who wanted to create a virtual currency that could be exchanged anonymously via the Internet. At first, it seemed no more than a game and bitcoins had no value. But then some computer scientists wanted to prove that they could set up reliable exchanges with real currencies, like the dollar. And the first bitcoin of this kind sold for a very tiny amount (less than one-thousandth of a dollar).

However, reliable, anonymous transactions that could be made without a bank account, free from any state control, became a particularly convenient way to sell drugs, launder money or avoid paying taxes. And so the bitcoin quickly attracted the attention of mafias around the world.

As it became a hit with the underworld its value increased, or more precisely its exchange rate in dollars went up. This is because its exchange rate is directly related to demand: the higher the demand for bitcoins, the higher their price. From then on, the bitcoin played a major role in speculation. Traders saw it as a way of making a lot of money fast. Banks joined the game and started offering bitcoin investments to their clients. Bitcoin gambling became one of the most profitable sectors in finance. On April 14, a single bitcoin sold for more than $64,000.

So what exactly is the value of bitcoins based on? On nothing but trust in the contracting parties—that is, on their trust in each other and their trust in the object of their speculation. For thousands of speculators, bitcoins have gained a recognized social value. Commentators wonder whether it's an actual currency or not. Whatever the case may be, like money, it only has value because millions of people give it value. If this mutual trust begins to falter, everything can fall apart.

Elon Musk, the bilionnaire boss of the luxury electric car company Tesla, promoted the bitcoin, claiming to have bought a billion and a half dollars worth of it. But, whether through intuition, calculation or both, he changed his mind and began criticizing this marginal currency. Shortly after, China announced that it was banning the use of bitcoins. This was enough to shake the confidence of speculators. Doubt spread very quickly and the house of cards collapsed.

So far, this crash hasn't had major consequences. Cryptocurrencies are only a small sector of finance. Finance is a huge, interconnected, uncontrolled and unstable casino. The bitcoin market is said to be highly speculative, but so is global finance. Capitalists prefer speculation to investments in actual production because there's more money to be made.

The bitcoin crash is a smaller version of the financial crashes which have hit the capitalist economy in recent decades. In 2008, an overall collapse of the whole economy was narrowly avoided, but the crash did indeed have far-reaching consequences. Companies went bankrupt, millions of workers lost their jobs and whole countries were plunged further into poverty while speculation started up all over again.

Knowing when the next financial crash will happen is not the real issue. Capitalist society is rushing headlong into speculation in more and more domains and even the most conscious members of the capitalist class only have one philosophy: “Who cares what happens tomorrow?”

The whole system is fundamentally based on exploitation. If companies impose longer working hours, if working speeds are increased, if big corporations close down sites to achieve the same production rates with fewer workers, it's all in order to make more profits and to feed speculation. Meanwhile, the unemployed are reduced to living on welfare handouts.

This race to disaster must be stopped. Working people can do this if they overthrow the bourgeoisie and take charge of running society. They have the strength to do so provided they become aware of it.