Published On: Thu, Sep 14th, 2017

Bitcoin price bubble: Is digital currency about to crash and burst?

JP Morgan boss Jamie Dimon this week savaged bitcoin as a fraud, and said he would fire any trader at the investment bank found trading the digital currency.

Bitcoin’s price has gone from around $600 in September 2016 to $4,900 at the end of August.

But in recent weeks the cryptocurreny has suffered heavy sell-offs – and Mr Dimon’s comments have not helped.

Billionaire investor Howard Marks has also denounced bitcoin and earlier this year said it was nothing but a pyramid scheme.

The co-chairman of Oaktree Capital said the digital currency has little value and the price has simply been pushed up by speculators.

Chris Beauchamp, chief market analyst at IG, said: “A ‘bubble’ in financial markets is defined as an asset that strongly exceeds its intrinsic value.

“So, to establish if there is a bitcoin bubble, we must first derive value for bitcoin, beyond that of a daily moving price.

“And here we have a problem.

“Stocks can be valued by their earnings, sales, book value or a host of other metrics.

“Bitcoin, on the other hand, is much harder to value.

“Rather than an intrinsic value, bitcoin is a story, one that latches on to the angst felt by people in the developed world.”

The price is now hovering at around $3,800, with losses coming after an expected crackdown by China on bitcoin exchanges.

However, some experts believe the price could rebound and push even higher in the coming months and years.

Mr Beauchamp said: “Bitcoin may well be a bubble, but that won’t stop the price from going up.

“Instead, we will need to see a new rival emerge, or see a general disillusionment with cryptocurrencies take hold.

“For now, it is tradeable, but it requires iron discipline and risk management. It is certainly not for the faint-hearted.”

Lingerie entrepreneur Michelle Mone recently said bitcoin is the currency of the future.

Due to the limited number of bitcoins, some people have compared the currency to precious commodities such as gold.

Yoni Assia, co-founder of eToro said: “Most large financial institutions are well on the road to accepting the enormous potential of blockchain technology, and many have invested significant sums in research, product development, and directly in cryptocurrencies.

“Blockchain technology and cryptocurrencies have the potential to sweep away all of today’s incumbent financial institutions.

“In the next 20 years we can expect all financial assets to move over to the blockchain.

“Bitcoin has a different utility from government and bank issued fiat currency.

“It’s popularity amongst investors over the last year is directly linked to increasing understanding of this real-world utility.”

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