Bitcoin in the trap of the ‘B’ word – Is it about to burst?

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Macro Economics

The digital currency, Bitcoin, has seen a stupendous five-fold rise in the last few months and has been on a tear. This makes the market sense about the bursting of a bubble which has been building for some time. The price for Bitcoin touched around US$5,000 at the beginning of September 2017, before slipping to the low level of US$2,981 few days back driven by the headwinds from China (which is closing its cryptocurrency exchanges), but it swiftly surged back to US$3,929 with the bullish momentum again picking up.

These turnarounds have given fuel to the speculation that the cryptocurrency is in a state of a bubble that can burst soon. It is yet to be understood that whether the current buying is merely at the back of selling prospects at higher prices or the rise would eventuate towards the use of Bitcoin as an alternate currency.

Chief executive of JPMorgan Chase, Jamie Dimon, has even termed Bitcoin a “fraud” and had compared the recent hype to the tulip craze of the Netherlands in the 1600s. Some have also labelled the currency as a blockchain technology with a probable potential to revolutionize economies, but still said to blow up in some time. Even Warren Buffett had earlier highlighted that the currency lacks intrinsic value, calling it to be a mirage.

In parallel to the above views, Ray Dalio, the founder of Bridgewater Associates has said that Bitcoin is not an effective storehold of wealth owing to its association with volatility (unlike gold), and is a highly speculative market.

It is also worth noting that money laundering risks hover over such digital currencies. Apparently, Bitcoin or other digital currencies do not need the holders to trade under their real name and this is said to lead to money laundering activities.

Given the aura around, it is to be seen whether the digital currency will again touch new all-time high and sustain the level, or crash as expected by majority of the experts.


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