Daily Management Review

Crypto-Bubble Fears Stirred By Buoyant Bitcoin


08/10/2017




Crypto-Bubble Fears Stirred By Buoyant Bitcoin
Virtually as big as Goldman Sachs and Royal Bank of Scotland combined, bitcoin and other "cryptocurrencies" are big money.
 
Dragging up the value of hundreds of newer, smaller digital rivals in its wake as the price of a single bitcoin hit an all-time high of above $3,500 this week. But now, a giant crypto-bubble may be about to burst are the fears that some investors are expressing.
 
With dozens of new currencies appearing every month in "Initial Coin Offerings" or ICOs, it has been a year of unprecedented growth for the largely unregulated market. And by drawing in those who are eager to get in and make a quick buck, they have achieved value almost instantly.
 
According to industry data firm CoinMarketCap, with bitcoin making up almost 90 percent of of the total market cap, the total value - or market cap - of all cryptocurrencies in existence was about $17.5 billion at the start of 2017.
 
And now with bitcoin making up just 46 percent, having the same value as Goldman and RBS together, the market is values around $120 billion.
 
For example. valued at more than $12 billion less than 24 hours after it had started trading was Bitcoin Cash, a clone of bitcoin that was split off from the original last week by a rival group of developers.
 
"It's just created new value out of nowhere," said Rob Moffat, a partner at Balderton Capital, a London-based venture capital firm who focuses on fintech. "There's no fundamentals behind any of this - it's all based on public perception, so you can start to see some really strange phenomena."
 
Billionaire U.S. investor Howard Marks had predicted the demise of the dotcom bubble of the turn of the century and he likens the cryptocurrency market to that dotcom bubble. Digital currencies were an "unfounded fad ... based on a willingness to ascribe value to something that has little or none beyond what people will pay for it", he said in a recent investor letter.
 
2017 is just the beginning of bull run, advocates of cryptocurrencies however say. In addition to the technological innovation that underpins them will ensure their enduring value, the finite nature of these currency units - there will never be more than 21 million bitcoin, are some of the examples they put forward to support their arguments.
 
"The idea of this thing being a bubble is silly. We're in the bottom of the first innings," said Miguel Vias of Ripple, the third-biggest cryptocurrency, who was previously global head of precious metals and metal options at CME Group.
 
Feeding off each other and magnifying the market effect, cryptocurrencies are likely to move together because their values are highly correlated, irrespective of the way they move.
 
The start-ups issuing new coins in ICOs generally collect money in a more liquid cryptocurrency, such as Ethereum's ether - the second-biggest cryptocurrency in total value is partly responsible for that in addition to investor sentiments.
 
And with a a market cap of around $28 billion and with a rise of over 3,000 percent so far this year, this has driven demand for ether.
 
(Source:www.reuters.com) 






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