On Friday the price of Bitcoin fell to $5,791, the lowest since last November, and while it recovered in Tokyo, the fall has led to a flurry of speculation that it will be wiped out. We cannot know, but since it is the largest of the cryptocurrencies, and other smaller examples are apparently now worthless, the possibility is clearly there. But of course, that may prove wrong – there may be some value after all.

What can we sensibly say?

First some thoughts about money in general; next some about this particular so-called “currency”; and then some about the consequences of a total collapse, or a recovery.

Bitcoin's volatile history in pictures Show all 8 1 /8 Bitcoin's volatile history in pictures Bitcoin's volatile history in pictures Satoshi Nakamoto creates the first bitcoin block in 2009 On 3 January, 2009, the genesis block of bitcoin appeared. It came less than a year after the pseudonymous creator Satoshi Nakamoto detailed the cryptocurrency in a paper titled 'Bitcoin: A peer-to-Peer Electronic Cash System' Reuters Bitcoin's volatile history in pictures Bitcoin is used as a currency for the first time On 22 May, 2010, the first ever real-world bitcoin transaction took place. Lazlo Hanyecz bought two pizzas for 10,000 bitcoins – the equivalent of $90 million at today's prices Lazlo Hanyecz Bitcoin's volatile history in pictures Silk Road opens for business Bitcoin soon gained notoriety for its use on the dark web. The Silk Road marketplace, established in 2011, was the first of hundreds of sites to offer illegal drugs and services in exchange for bitcoin Bitcoin's volatile history in pictures The first bitcoin ATM appears On 29 October, 2013, the first ever bitcoin ATM was installed in a coffee shop in Vancouver, Canada. The machine allowed people to exchange bitcoins for cash REUTERS/Dimitris Michalakis Bitcoin's volatile history in pictures The fall of MtGox The world's biggest bitcoin exchange, MtGox, filed for bankruptcy in February 2014 after losing almost 750,000 of its customers bitcoins. At the time, this was around 7 per cent of all bitcoins and the market inevitably crashed Getty Images Bitcoin's volatile history in pictures Would the real Satoshi Nakamoto please stand up In 2015, Australian police raided the home of Craig Wright after the entrepreneur claimed he was Satoshi Nakamoto. He later rescinded the claim Getty Images Bitcoin's volatile history in pictures Bitcoin's big split On 1 August, 2017, an unresolvable dispute within the bitcoin community saw the network split. The fork of bitcoin's underlying blockchain technology spawned a new cryptocurrency: Bitcoin cash REUTERS Bitcoin's volatile history in pictures Bitcoin's price sky rockets Towards the end of 2017, the price of bitcoin surged to almost $20,000. This represented a 1,300 per cent increase from its price at the start of the year Reuters

Cryptocurrencies are quite new but the history of money is very old. People have used something as money for at least 20,000 years. Paper money is only a few hundred years old in Europe but was used a couple of thousand years ago by the Chinese. The classic functions of money are threefold: they are a medium of exchange, a unit of account and a store of value. The second is simply something we can price things in, thereby measuring comparative values, and the first and third are obvious.

On this tally, none of the cybercurrencies stack up. They have a marginal use as a medium of exchange because some people will accept them in exchange for goods and services, but they are too volatile to be useful as a unit of account or store of value. Indeed in most transactions they don’t really serve as mediums of exchange because they have to be switched into real money first. They are, however, an asset class like gold, fine wines or classic cars.

That leads to the next question, and maybe soon very relevant question: what happens now to their value?

With regular currencies there is an issuing body that will in extremis stand behind them: usually a national government. Ultimately the backing is the taxing power of the state. Sometimes that taxing power is inadequate to support the currency, or the central bank issues too much of it. The most recent example of this is Venezuela right now. The Bolivar has lost 99 per cent of its value against the dollar this year (Bitcoin has lost 58 per cent), and if I have got my decimal point in the right place the current rate is more than 100,000 Bolivars to the dollar. So it is in effect worthless. The poor country (which given its oil revenues should be the richest in Latin America) is running on barter and dollars. Currency refrom is promised for August, and we’ll see.

So what is behind Bitcoin? Well, it is not clear that there is anything there at all. It may be that the holders of Bitcoin will collectively support it, in that they will accept it in return for goods and services. That would allow it to continue. But if they collectively try to bunk out, there would be a Bolivar situation.

Might there be collective support? The trouble is that we don’t know who owns the Bitcoin. A huge amount of energy has gone into uncovering ownership but apart from a few high-profile holders such as the Winklevoss twins in America, the names remain concealed. By looking at IP addresses, it is clear that ownership is very concentrated. According to BitInfoChart, 87 per cent of all coins issues are held by 0.5 per cent of holders. But the big holders don’t seem very active, for many of them don’t seem to have sold any at all.

Anecdotal evidence suggests that the larger holders in the developed world fall into five groups. There are some tech-savvy people who got in very early and saw cryptocurrencies almost as a game. They are probably still holding onto all or most of their stock. Second, there are people around the world who have suddenly come into money – oil workers in Kazakhstan – and want to pop it into a variety of different investments. Third, there are computer students, who literally bought the hype and put cash into a few Bitcoin while there were still affordable. Four, there are general investors, many of whom who got suckered in last autumn and are sitting on big losses. And finally there are the illegal or tax-avoiding holders who want an asset that is under the radar.

The intriguing question is this: who, among these groups, really needs to sell? We have seen a collapse of the currency, but from a very high level. Many holders, probably most, will be still on a profit. So the question will be whether enough of them decide that they do want the deposit for a house or whatever else.

But this is in the West. Most of the trading in Bitcoin is now in Asia, with much of that in China. It may be that this is more trading than holding, or it may be that investors in the developed world have indeed been gradually unloading their stock and this is being picked up by Chinese investors. It may be that as and when the final collapse comes, the run will start in Asia. We simply don’t know.

Warren Buffet: Bitcoin is 'rat poison squared'

What we do know is that cybercurrencies are much frowned upon by the financial establishment in the West. There are a few supporters but not many. On Friday Mohamed El-Erian, chief economic advisor at Allianz, said Bitcoin would be a buy if the price falls below $5,000. The most scathing and detailed commentary came last week from the Bank for International Settlements (BIS). It said there were three problems: scalability, stability and trust.

On scalability it pointed out that these currencies were now using enough electric power to run Switzerland. It follows that if they were to grow further there would not be enough power in the world to drive them. Stability, well – we have seen what has happened. And trust? The BIS thinks that the decentralised nature of cryptocurrencies is a weakness rather than a strength.