Over the past week Bitcoin fully recovered from its weekend flash crash (from a top of $395 down to $290) and seems to be going in the direction of $500. The growth is still way too fast in my opinion, but with my Bicoin holdings I don’t complain of course.

At the moment I spend 1-2 hours per day reading about and analyzing Bitcoin, and based on this I believe that the current spike in prices is mainly coming from China. Why? Because Chinese see Bitcoin as a new asset class. Most Chinese can only invest in the domestic stock market (which is perceived to be full of inside trading) and real estate. They can’t invest outside China. Bitcoin gives them something new to invest in and many are jumping on to this new opportunity without really knowing too much about it and just hoping to make a lot of money. Right now most people do well, but of course a crash may happen when everybody should start selling.

Next to that Bitcoin also gives Chinese a relatively easy way to obtain foreign currency without going through the grey or black market. The Chinese Renminbi is not freely convertible, so you can’t just go to a bank to change them to US dollars. However, you can change RMB to Bitcoins, and these Bitcoins can be changed to US dollars. From personal experience I know this is an important issue, even for some Chinese friends in Vancouver that can’t get their Chinese money out in a legal way (money they legally earned, but that’s stuck in RMB bank accounts).

Because of these speculative effects it’s impossible to predict where the Bitcoin will be 3 to 6 months from now. It all depends on how many Chinese will enter the market. Looking at volumes on Chinese exchanges I believe this is still the beginning of what is to come and part of a self-fulfilling prophecy: the price goes up so more people buy, which causes the price to go up even further. One day there may be a crash and then the real value of Bitcoin becomes more important.

But what is this real value of a Bitcoin and more importantly, how high could it be eventually? With eventually I mean a timespan of 5-10 years, the time that I plan to keep most of my Bitcoin. The value mainly depends on what Bitcoin will be used for. For example, I strongly believe that one of the first things that will happen, is that Bitcoin will take over all the current business of Western Union (money transfers to less developed economies). Why? Western Union charges about 10% in fees! Bitcoin is virtually free and transactions happen instantaneous. Based on the current value of Western Union you can calculate the implied value of Bitcoin, which would be around $880.

I think Bitcoin will be much bigger than just Western Union. What will happen if it takes over the role of Paypal (which is also very likely)? In that case the implied value of Bitcoin would be $1950. And you should add up these figures if you believe that Bitcoin will disrupt both Western Union and Paypal’s business.

It gets really interesting if you start looking at what would happen if Bitcoin would take over just a small share of the gold market. That is, if people would use Bitcoin as a store of value instead of gold. In a way that is what is happening now already in China, although it’s probably not a substitute for gold. In case Bitcoin woul just take over 1% of the role that the gold market has, its implied value would be almost $8000. Of course if it takes over 1% it will likely take over more after a while, so watch that closely if you hold Bitcoins.

Some people are even more bullish than this, for example the Winklevoss brothers. They announced this week that the market cap of Bitcoin could be 100 times the current value. They are among the biggest owners of Bitcoin, so this may be wishful thinking, but the fact that they say this publicly means that they at least have some belief in this.

In the short run a lot can happen to Bitcoin. For sure the volatility will remain extremely high and possibly there will be a big crash because speculators cash out before more people really start to use Bitcoin. But in the long run I believe that Bitcoin has real value. The Bitcoin protocol has so many potential applications that there will be a big ecosystem built on top of the crypto currency. For that reason I remain very bullish on Bitcoin, despite the crazy increase in price over the past days and weeks.

To keep things in perspective, tomorrow I plan to publish an article on this blog about the risks I see for Bitcoin.

During a trip to San Francisco in mid October I landed at SFO just before 10:30 PM and took the train to the Hertz rental car desk. I have been using Hertz for years and I have disliked them for most of that time. It’s just like with most airlines, you don’t like their service and attitude but you have to use them because there is no better alternative. Car rental companies always try to upsell you with insurance (I don’t need it, which they should know after declining it tens of times already), they force you to top up the fuel before bringing back the car (otherwise you pay draconian prices for it), and they let you wait in line when you are tired after a flight. And in nicer cars they disable the GPS so you are forced to rent one at crazy expensive prices!

So in October I arrived at Hertz around 10:30 and there was a loooong line. Well, what can you do? Just wait in line for half an hour until the service people on duty are ready upselling stuff to other customers. I observed the process and came to the conclusion that their system is so inefficient. They take their time to scare people into adding unneeded options to their rental contract and even as a regular customer you still have to go through the upselling process (“You declined insurance, sir, do you know that you won’t be covered if you have an accident?” Well, actually I am covered by my own insurance but there is no use to discuss this with them). You need to sign several documents and then you are finally allowed to walk to your car.

At least, that’s normally the case. But not last time at SFO: for whatever reason cars were not ready yet and I had to sit down and wait before they had a car for me, just like all their other customers. It was around 11:15 PM by that time, and I was tired and just wanted to leave the airport and drive to my hotel.

So I started tweeting about the Hertz experience, and guess what: new car rental company Silvercar saw my tweet and told me to check them out next time. Because I had enough time on my hands I went to their website and was surprised to read about how they are trying to disrupt the car rental experience. I immediately decided to give them a try during my next trip to SFO.

Well, this week I was back in Silicon Valley and we (Frank and I) booked a car through Silvercar. With the company you always get a silver Audi A4 Quattro, so no crappy US or Japanese cars anymore, but a decent German car with a reasonable (2.0 Turbo) engine. Maybe not as good as our regular cars, but much better than what Hertz normally gets you. And for a very reasonable price, I think we paid something like USD 85 per day for the car, that comes standard with GPS (no need to pay for a separate GPS unit), wifi and satellite radio. Also no need to fill it up when you come back, they do that for you and you pay the normal gas price plus a $5 service fee (sensors calculate how full the gas tank is). And best of all: no lines and no upselling!

The experience started off a bit bad, because our executive assistant had booked Silvercar for us and set up her own account for that. We did not realize this would lead to problems, but when you use your own Silvercar account the confirmation code does not work. Normally you open the app the moment you get off the plane and you let Silvercar know that you have arrived. A concierge will pick you up from the arrivals hall or from the car rental area (at SFO you have to take the train to car rental, because SFO does not allow them to pick you up at arrivals) and drive you to the Silvercar parking lot. However, when we tried this the app told us we did not have the right permissions. However, Dave (our concierge), had seen that the plane had arrived and sent us a welcome text message. We tried to reply the message and call him, but for some reason (related to Google Voice) we could not reach him.

At the Silvercar waiting area at SFO there is a phone you can use to call them, but the phone was out of order… So we had a little problem, because we could not reach Silvercar. But then I remembered that they monitor Twitter, so I sent them a tweet. And that worked: within a minute I had a reply and Dave was on his way to pick us up. He apologized for what had happened and we had a nice chat about how Silvercar works.

At their car lot we could choose the car that we wanted to take. They are all the same so we took the one closest to us. You scan the QR code on the front window with your iPhone and the doors unlock. It worked perfect! No waiting line, nu upselling, just scanning the code and driving away. I added myself as the second driver, which took just a minute and there was no extra fee for that (at Hertz it takes a much longer time and you have to pay for the privilege). Excellent!

We used the car for 3 days and liked the vehicle a lot. It has Sirius XM built in (all their cars have this, and it’s included in the price), so I could listen to the same satellite stations as in our cars in Canada. The Audi even has a toll tracking system built in so you can easily pay electronic tolls without having to stop, also something which is not a regular feature at Hertz. And it even has wifi built in, but I only found out about that after I returned the car (I did not read the short manual, my own fault).

The car itself drove very well, the A4 Quattro has a a good suspension and accelerates reasonably fast. I actually started to appreciate Audi more than I did before. Their dashboard is well designed (actually better than the current low-end BMW and Mercedes models, something I had not expected), and I may even consider to buy an Audi in the future. Something a bit bigger and faster than an A4 Quattro though!

When we dropped off the car this afternoon the process was very efficient. You can just drive into the parking lot where sensors register that you are back. The sensors also calculate how much fuel you used and bill you for that at local rates (plus a one-time $5 fee) and they know if you had to pay toll fees anywhere. You immediately receive the bill in your email.

A concierge will drive you to the airport in your own car (so you can leave the luggage in the vehicle). Very convenient, especially because he drops you off at the terminal where you need to be. We had a quick chat with the manager to talk about their start-up and give some advice, we are investors after all. He immediately gave us a corporate discount and an another one for XPCP’s portfolio companies. That’s called Service with a capital S!

We’re now at the airport having a glass of wine in the lounge, and probably for the first time I look back at a great rental car experience. I will use Silvercar again during our next trips to the Valley and I will promote it to my friends as well. I hope Silvercar will manage to disrupt the car rental agency, I will support them!

Silvercar currently has rental cars at San Francisco, Los Angeles, Dallas (DAL & DFW), Houston and Austin. Prices are similar to what you pay for a Toyota Camry at a traditional car rental service. All cars have standard GPS, wifi, satellite radio and toll tracking. Check out the company at www.silvercar.com.

Yesterday I was a guest in Dutch Internet talk show Fast Moving Targets again (the same show I appeared on about a year ago). It’s a show that’s broadcast live from Amsterdam each Tuesday night at 9 pm, and the audience is encouraged to interact via Twitter. The show is always quite lively and fun, with the presenters drinking a Palm beer during the program. I actually wonder if Palm sponsors them?

Anyway, yesterday the topic was ‘Bitcoin for beginners’ and because I write so much about Bitcoin on Facebook, Twitter and on this blog I was invited to join the discussion. I am based in Vancouver so I called in via Skype video, which worked well. The program was fun as usual, discussing the basics of Bitcoin and answering questions from the (sometimes skeptical) audience.

Interesting was that presenter Roeland Stekelenburg realized right before the program started that he had bought some Bitcoins about a year ago. So while waiting for the show to start he was trying to find back his virtual wallet (he did not even know where he had set it up) and right when we started he found it back. It turned out that the EUR 100 that he had put in was now worth over EUR 1000, so that was a good start of the show for him! To show how fast and easy Bitcoin is he then transfered a small amount to Rutger van Zuidam, which arrived in his Rutger’s wallet immediately.

Unfortunately the show is in Dutch, so most of the people reading this blog won’t be able to watch (or better, understand) it. But in case you speak Dutch I embed the YouTube version of Fast Moving Targets below. If you want to watch it on YouTube, the link is here. There will likely be a follow-up show where we will go into a bit more detail about Bitcoin and where Peter Verhaar (a Dutch banker who Twittered during the show that he does not understand why the Euro is not good enough) will also join the discussion.

Last week Twitter went public on the New York Stock Exchange and its IPO was considered a success with a large pop on the first day of trading. Because of US Securities and Exchange Commission (SEC) rules there is always a quiet period around an IPO, meaning that companies can’t talk publicly about their business. ‘Coincidentally’ 2 days before the IPO the book “Hatching Twitter: A True Story of Money, Power, Friendship and Betrayel” came out. Of course I don’t believe in this kind of coincidences and think it was a smart marketing move by the company to create extra publicity for the stock.

I have been following Twitter from its early days and was an early adopter of the platform (originally with username @marcvanderchijs, later I changed to @chijs). Although Twitter has changed a lot over the years I am still on it, although not as much as in the early days. So when I saw that this book was coming out I pre-ordered it right away and finished it last night.

It’s a great read, but I did not realize that Twitter had been in such a mess for the first 5 years of its existence. Every start-up has its ups and downs, but at Twitter nobody seemed to be in control. The outside world did not really see this, but this book tells it all. It must have been hard to have been an investor in Twitter and see that your millions are at risk because the founders were simply incapable of running the company.

Before reading the book I sort of admired the Twitter founders Jack Dorsey, Biz Stone and Ev Williams. They ran a company called Odeo back in 2005, of which I was a user.  Odeo did something very similar to the original idea of Tudou: audio podcasts. I still remember reading about Odeo on the front page of the New York Times, about 2 months before the public launch of Tudou, thinking that they were on the wrong track. At that time Tudou had already made the switch away from audio to video, but Odeo still needed a year to figure out a new business model, which turned out to be Twitter.

I especially liked Jack Dorsey, he seemed to be a second Steve Jobs. However, after reading Hatching Twitter I realize he would like to be the new Steve Jobs (and therefore he copies many things that Steve did), but he is far from it. He almost ran the company into the ground, did not listen to his co-founders and later successfully managed to get his former friend Ev fired as CEO. Although getting Ev fired may have been a good thing (Ev also wasn’t the best person to run a company like Twitter), generally Jack seems to be an unfriendly, egoistic person. But he is a new billionaire now, so he probably doesn’t care.

It’s actually a miracle that Twitter survived its first years. Only because the product was so good and grew virally they managed to stay alive, and to eventually grow into one of the largest web companies in the world. This book shows the inside story about the company: how did the founders get the idea, how did they get started and how did they get to where they are now.

I loved to read it and would recommend it to anybody who is involved in an Internet start-up or who would like to do one one day. It’s a 300-page book that’s easy to read, and you can probably finish it in one evening.

Update: the predicted crash happened about 12 hours after I wrote this post, see details at end of post.

Since I started following Bitcoin the price has been very volatile but mainly been rising. If you had bought Bitcoin around the time I started blogging about it you would have made a very decent return (360% in less than 5 months), however most of these gains were realized over the past couple of weeks and especially the past couple of days.

One month ago Bitcoin was still at $135, a week ago the rate was around $220, but right now it hovers around $370. It’s great when you plan to make a quick buck, but I see Bitcoin as a long-term investment (or speculation as some call it) in a crypto currency that has the potential to change the world of finance. In that case such a fast increase is not desirable, because it looks like a hype. And I believe what we are seeing right now is a hype, many people seem to be buying in the hope of higher prices.

I believe that in about 2 years from now Bitcoin will be at $1000, based on fixed supply and increased demand because of more transactions taking place in Bitcoin. But I hope we won’t hit that in a few months already. At the current rate of increase (sometimes over 20% per day) I feel like a crash is imminent.

Most current demand seems to be from China, which explains why Bitcoin goes up most during daytime in East Asia. A lot of people don’t fully understand the long term potential of Bitcoin and will likely try to sell to get out of it, making the crash even worse. I won’t sell and will try to buy at the low end of the crash, which should be higher than the last flash crash that ended at lows of $185. But I still hope that it won’t happen because it will undermine the confidence people have in the currency.

So on the one hand I am extremely bullish on Bitcoin, but in the short run I feel the high price may not be sustainable yet. Maybe (hopefully) I am wrong, and the current demand is really based on more people buying with the intention of holding the currency for a long time or to use it for transactions. But if not I would not be surprised to see a flash crash happening soon.

I am normally very bullish, but the current pattern is scary and it reminds me patterns that I learned while studying economics of what happened during the Tulip Bulb rally in 1637 or right before the Dow Jones crash in September 1929. Bitcoin is fundamentally different from what happened there, but it seems that ‘dumb money’ is now entering the market, just like it happened during those times. Time will tell, and if it happens I will of course blog about it.

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Update: a crash indeed happened about 12 hours after I wrote my post. At first the drop was quite scary:

But I hoped the market would find a bottom and it did indeed. Two days later the market is almost back where it came from:

The growth is still too fast, but at least some of the speculators have probably left the market.

Today the world’s first Bitcoin ATM was placed in Vancouver and of course I had to be among the first to try it out. So this morning I stopped by at the Waves Coffee shop on the corner of Howe and Smithe St. to take a look. There was a TV truck parked on the sidewalk and inside quite a crowd had formed. I was lucky to find a parking spot on the street right in front of Waves, so no need to find a parking garage.

I went in and saw a mixed crowd of people in their 20s and 30s, plus a lot of media (photographers, TV, traditional journalists and of course bloggers). The line for the ATM was surprisingly short, however. It seemed that most people just came to check it out and may not have Bitcoin wallets yet. After 10 minutes it was my turn and while media were filming and taking pictures I had to scan my hand palm to get started. That took some time, but eventually it worked. But then I got the message that I had to be approved first. I did not want to wait for that and went to the office. After about 30 minutes I received the message that I was approved and could buy and sell Bitcoin.

After a lunch meeting I stopped by the ATM again, this time there were just 2 people ahead of me. Strange enough the hand palm scan was not required anymore (I assume most people did not want to wait before doing a first transaction and they stopped the requirement temporarily) and I could deposit money right away. I decided to start with only 20 dollars, just in case something went wrong. It was fairly simple, you push the ‘buy Bitcoin’ button on the touch screen, scan your wallet’s QR code (or put it in manually) and put your money in. You then get a receipt and the money should be in your account in an hour (the money arrived in my wallet exactly 57 minutes after I put it in).

The rate that I got was about 1.5% above the actual rate on Mt. Gox ($216 vs. $213), which is okay for me. I did not withdraw any money yet, but I assume there will be a similar ‘transaction fee’. It’s a great service to have such an ATM in downtown Vancouver, and I would be willing to pay even more than this. When more ATMs arrive I assume there will be downward pressure on the fees that are charged.

For me using the Bitcoin ATM was an eye opener: for the very first time I saw Bitcoin as real money, not just money that you can transfer online to pay for things, but money that you can get out of a machine as real bills. So far it has always been virtual for me. Of course I could have sold some of my Bitcoin holdings over the past months and gotten money on a bank account, but now I see actual real money coming out of an ATM.

This is a significant event for the acceptance of Bitcoin, because most people use ATMs already anyway. This is a similar experience to a normal ATM, except that you don’t use a bank card but a QR code of your wallet. Everybody who has a wallet can now buy and sell Bitcoin with real cash! I realized that this ATM is what was missing to make Bitcoin more mainstream. The other thing that’s still missing is a safe and easy-to-use wallet, but I know that several companies are working on this challenge.

If I would be selling these Bitcoin ATMs I would ship them to India or other countries where people receive money through Western Union or through shadow banks. These money transfer services charge 10% or more on transactions and it can take quite some time to receive the money. With Bitcoin ATMs that can be done for a fraction of the cost and in a fraction of the time. There are huge business opportunities that could completely disrupt the banking industry.

Although tomorrow the world’s first Bitcoin ATM will be installed in my new hometown of Vancouver, my former hometown Shanghai seems to be the first city where you can actually buy a new condo with Bitcoin. I am not sure if this is just a smart idea to virally promote the project, but a developer now sells small new apartments (42-81 sqm) in Zhangjiang, a hi-tech park area on the outskirts of Shanghai, that you can pay for in the crypto currency. They hope to attract Internet and tech people to live and work there.

The rate is not particularly good though, the developer set it at 1 BTC = 1000 RMB, which is about $164 right now, much lower than the actual rate of above $200 on Mt. Gox. But maybe he just set it a week or 2 ago, during Bitcoin’s fast acceleration? Although there are a lot of tech people around in Zhangjiang that are probably mining Bitcoin, I would be surprised if any of them have accumulated enough coins to buy an apartment.

But you never know, look at this guy in Norway for example. He wrote a thesis about crypto currencies in 2009 and bought for about $27 Bitcoins. He forgot about them and suddenly realized earlier this year that he still had them sitting somewhere in a virtual wallet. At that moment the Bitcoins were worth $885,000 (at today’s rate more than $1 million already), and he bought an apartment right away with part of the proceeds.

In my post yesterday I mentioned that I had noticed that the price increase in Bitcoins mainly takes place during daytime in China. That could imply that exploding exchange rate is mainly driven by Chinese demand. That theory was confirmed by a table from Bitcoinity that Justin Tsang sent me on Twitter today. The picture shows that over the past 3 days the largest Bitcoin exchange in the world is not Mt. Gox anymore, but BTC China!

Although over the past 24 hours Mt. Gox is bigger than BTC China again, I think this is quite significant for the Bitcoin economy. China is not only taking over the real world, but now also the virtual one. This is something fairly recent, because before I left China earlier this year nobody really talked about Bitcoin yet. Bitcoin is not mainstream yet, but with Baidu now accepting Bitcoin and BTC China being the largest Bitcoin exchange in the world, this is changing very fast!