NATGRO | Bitcoin: Bubble or Boom
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Bitcoin: Bubble or Boom

Bitcoin: Bubble or Boom

What lies ahead for the golden child of cryptocurrency in 2018?

Since hitting an all-time high of almost USD20 000 per bitcoin in December 2017, the cryptocurrency has almost halved in value over the past month. To put bitcoin’s performance in context of equity market crashes, the correction we have seen over the last month is larger than both the Black Monday and Tuesday stock market crashes (the largest global equity market corrections on record).

Given that bitcoin is closer to being a currency than an equity or a bond, the stability of its price will ultimately be determined by its likely use as a currency and as long as this remains unclear the bitcoin price is likely to be volatile and the risk of it being in a bubble relatively high.

This is according to Zain Wilson, an investment analyst at Old Mutual’s MacroSolutions boutique, who cautions that while shares can sustain periods of large drawdowns (as long as the underlying businesses do not go bust), excessive volatility and a collapse in the price of a currency can perpetuate vicious cycles, driving away those that use it as a means of exchange.

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