Daily Management Review

Alarm Bells Around Bitcoin’s Volatility Rings Louder Even As The Cyptocurrency Shoots Past $16,000


12/10/2017




Alarm Bells Around Bitcoin’s Volatility Rings Louder Even As The Cyptocurrency Shoots Past $16,000
Questions about whether bitcoin is in a bubble and is about to burst are being raised after the cryptocurrency surpassed the $16,000 mark as it saw a 67 percent rise in value during last week.
 
Investor interest has been fueled by the impending launch of bitcoin futures and there was extreme pressure on the largest U.S. cryptocurrency exchange due to record traffic as the price surged.
 
Bitcoin has been equated with a precious metal that is used to store value as it is a good medium of exchange, say some proponents. Because of the fact that bitcoin does not fall under the purview of central banks, therefore it should be preferred over traditional currencies, they argue.
 
There are about 16.7 million bitcoins in the world and it is anticipated that new bitcoins would be stopped being supplied after the number reaches 21 million. 
 
But bitcoin is very vulnerable to a sharp reversal, say critics, because only speculation is driving the high price for the cryptocurrency. In September, bitcoin was famously described as fraud by PMorgan Chase & Co Chief Executive Jamie Dimon.
 
“Bitcoin remains a major gamble as it is very much an asset that remains in uncharted waters, we’ve simply not experienced this before,” said Nigel Green, founder and chief executive of deVere Group.
 
“Also, an asset that goes almost vertically up should typically raise alarm bells for investors,” he added.
 
So far this year, there has been a seventeen fold increase in the value of the world’s biggest cryptocurrency.
 
According to Coinmarketcap, a trade website, the latest market cap of bitcoin is at about $305 billion, after the latest surge in value. Market cap of bitcoin is calculated by multiplying the value of bitcoin with the number of bitcoins in circulation. Compare this with the $288 billion market value of Wal-Mart Stores Inc.
 
The price of bitcoin was being driven up anticipation of more investors showing interest in it just prior to the launch of bitcoin futures by the world’s largest derivatives exchanges - Cboe Global Markets Inc’s Cboe Futures Exchange, say analysts.
 
NASDAQ has plans to launch the crypto currency next year.
 
The extent of participation of the big U.S. banks in the new bitcoin-related activity is not yet clear.
 
A spokeswoman of Goldman Sachs Group Inc said that the bank would will clear bitcoin futures for certain clients when they go live.
 
The bank is “evaluating the specifications and risk attributes for the bitcoin futures contracts as part of our standard due diligence process,” spokeswoman Tiffany Galvin said.
  
An outrage due to record was experienced by Coinbase, the largest U.S. platform for buying and selling cryptocurrencies, the agency said on Twitter’.
 
Further volatility in the cryptocurrency could be triggered by the speculative short positioning by investor after the launch of bitcoin futures with the aim of bet against the cryptocurrency.They would also engage in in long positions, increasing volatility, some analysts warned.
 
There is however lack of even the very basics of oversight in the underlying bitcoin market even though exchanges like Cboe, CME and Nasdaq offer strictly policed trading environments.
 
“Aggressive traders, such as hedge funds and algorithm-driven funds, (will be able) to use this futures market to enter bitcoin trading with high levels of liquidity for aggressive short-selling and knock the prices really low,” said Think Markets analyst Naeem Aslam.
 
“Players now have an incentive to be on the short side and make profits hedging against the upside.”
 
Bitcoin could also lose its shine due to concerns about cybersecurity.
 
(Source:www.reuters.com)






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