Is Bitcoin Really in a Bubble?

Despite bitcoin’s growing credibility among individual and institutional investors, the cryptocurrency’s skyrocketing price is causing some concern.

Investors and speculators are biting into bitcoin — in a big way. The price of the cryptocurrency surged by nearly 1,900% in 2017, to an average high of $19,499 on December 15 across major bitcoin exchanges, before plunging down to just over $13,000 a week later, according to blockchain.info. The ascent is striking especially since bitcoin emerged just eight years ago, the creation of a mysterious person or group of people named Satoshi Nakamoto. In 2009, bitcoin was worth zero.

Bitcoin’s popularity persists even though it has no intrinsic value per se. It is not backed by gold or physical assets, nor does it pay interest or dividends. Bitcoin cannot be used as money in most places. That’s why its skyrocketing price is causing concern. Fed Chair Janet Yellen called bitcoin a “highly speculative asset”; JPMorgan Chase CEO Jamie Dimon said it was a “fraud”; billionaire Warren Buffett called it a “mirage,” while Vanguard founder, Jack Bogle, told investors to “avoid bitcoin like the plague.”

“There has been a lot of hype and excitement, and that clearly has driven the price possibly away from the real utility value of the network and much more into the speculative realm,” said Christian Catalini, a professor of technological innovation, entrepreneurship and strategic management at MIT, on the [email protected] show on SiriusXM channel 111. “The floor value of bitcoin is zero. Bitcoin only has value because people believe and agree it has value.”

Much of bitcoin’s stratospheric rise was achieved last year. For years, bitcoin traded in a much lower range due to its novelty, a spate of negative news such as the 2014 hacking of the now-defunct Mt. Gox bitcoin exchange, and early link to criminal activities (Silk Road). Those same concerns are still around — a South Korean digital currency exchange recently closed down after suffering its second cyberattack. However, bitcoin’s adoption by major institutions gives it a sheen of market credibility.

Sourced through Scoop.it from: www.fairobserver.com

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