Category Archives: Bitcoin
Bitcoin’s Price Reaches $2025, No End in Sight – The Merkle
Bitcoin made history earlier today when it hit the $2000 mark on exchanges. After starting the year at $1000, the price more than doubled in this year alone. Bitcoin hit a peak of $2025 earlier today, setting a brand new all time high.
Last week, the currency stalled at around the $1700 levelafter the market bounced back and forth between support and resistance. However, as the new week began, the bulls took over and boosted the price to new heights.
Some reasons why the price is exhibiting such momentum is due to the obvious growing interest of investors. Among the political turmoil caused by the Trump administration, along with growing adoption in Japan, it is evident Bitcoin is exhibiting the benefit of these events.
Furthermore, the negative forces that were affecting the market earlier this week such as the scaling debate and the impending SEC decision, seem to have been forgotten. While Bitcoin is suffering from major transaction backlog, that fact doesnt seem to be discouraging investors into buying into the currency. In fact, it seems that the high fees only make Bitcoin more attractive because it makes the cryptocurrency look more exclusive and luxurious. While that may not necessarily be a positive thing, the price doesnt lie.
Moreover, the upcoming SEC decision which will decide on the Winklevoss ETF application petition for review, is seemingly irrelevant to the market. While the first time the SEC denied the Bitcoin ETF application the price dove over $200 it seems that this time it will be different.
Mati Greenspan, Senior Market Analyst at eToro said:
The $2,000 mark is a historical moment for Bitcoin. Landmark moments keep happening the value jumped $500 in just two weeks. Bitcoin is gaining some serious momentum among investors on our platform, with 88% of Bitcoin traders still buying the asset.
Assuming the buying volume remains steady, there is no reason why Bitcoins price wont keep on rising. Furthermore, if the price rises to roughly $2900, we may see Bitcoins first bailout MtGox. Thats right, if the price rises enough, MtGoxs 200,000 coins might just be worth enough to repay all of its creditors.
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Bitcoin's Price Reaches $2025, No End in Sight - The Merkle
Bitcoin is a Speculative Asset, Not a Currency, Says Economics Professor – CryptoCoinsNews
Jeffrey Dorfman, an economics professor at the University of Georgia, sees bitcoin as an asset rather than a currency. Writing in Forbes that value of the cryptocurrency increased 140% in 2016 and 49% in the past month, Dorfman maintains the swings in either an upward or downward direction do not make bitcoin a plausible currency as much as a speculative asset.
Bitcoin does not make a good currency for two key reasons: its unstable value and its slow transaction time.
Dorfman claims the most important feature a currency has is being a stable store of value. This factor is important to a developing economy trying to attract investment. It is also important for developed countries to allow investors to earn the returns they expect on investments. An unstable currency makes it difficult for investors to predict the value of future earnings.
Because uncertainty makes investments less valuable, less investment occurs.
The value of bitcoin changed an average 2% over the last month, Dorfman noted. The exchange rate between the U.S. dollar and the euro, by contrast, was under 1% and only changed 3% for the full month. There were seven days when the value of the cryptocurrency changed more than 3%, which is more than the dollars value changed for the full month.
People do not want debts or investments denominated in a currency with value changing by nearly 50% monthly, Dorfman observed.
As for transactions, bitcoin is slow due to the process of protecting the security of itsblockchain.
There are restrictions on how many bitcoin transactions can be completed in a day. Changing the rules for processing BTC transactions has met resistance in the bitcoin community from those who wish to preserve its traceability and anonymity.
Dorfman claims bitcoins security negates its value for everyday use.
He said the cryptocurrencys main value is for speculation and for shielding transactions. It is a commodity asset that people trade.
Also read: Coinbase VP: BTC is demonstrating signs of a currency
Speculation has value, Dorfmannoted. It adds to market liquidity and determines assets market value. Where bitcoin differs from other assets is that it does not have an underlying use. One can invest in jewelry or gold, for instance. Bitcoin, by contrast, is used to hide wealth, conceal illegal transactions and to trade in order to gain or lose value.
Bitcoins popularity, Dorfman noted, confirms the value many people see in the cryptocurrency. He said he has no problem with people using bitcoin for these reasons, but people should stop expecting it to be a currency for everyday transactions. It is destined to remain in its niche to speculate and to conceal.
Featured image from Shutterstock.
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Bitcoin is a Speculative Asset, Not a Currency, Says Economics Professor - CryptoCoinsNews
Is Bitcoin Safer Than Gold? – TheStreet.com
With President Trump's problems and political grandstanding dominating the daily news cycle, several major stories have been pushed out of the spotlight. A global cyberattack that covered 150 countries, 200,000 computers and major institutions like FedEx (FDX) , the U.K. National Health Service and the Russian central bank has received comparatively limited coverage. At the same time, the alternative digital currency, Bitcoin, which was born in cyberspace, has reached all-time highs. Gold gets honorable mention as a safe haven, but not much more. But where does the real risk, as well as the real value, lie?
In view of the severity of the latest cyberattack, it is only prudent to examine cybersecurity in relation to our financial system. The central bank of Russia, Bank Rossii, was one of the victims of this latest attack, but the Federal Reserve Bank of New York was also a victim of cybertheft as recently as February 2016. That heist of $81 million was linked to Bangladesh and possibly North Korea.
With these types of large international players constantly attacking the core of banking and finance, how safe are all the digital dollars that we have stored in cyberspace? Cybersecurity experts estimate that there are over 200 million attacks on the system daily. Although very few of these attacks succeed, their severity continues to grow, exposing the inherently fragile nature of our highly interconnected financial system. This risk underscores the value of holding a real asset whose value is not dependent upon the financial system.
Bitcoin has got everyone talking these days. Even though it is a relatively new phenomenon (it's only been in existence since 2009), it has captured the imagination of many in the financial community. With an eight-year track record, bitcoin has demonstrated that it has value. The question is, how much value and value measured by what?
Bitcoins can be attained by digitally mining for them or in exchange for other currencies. Its value lies in the qualities it possesses. Like other forms of money, it is a medium of exchange, unit of account and store of value. According to a research produced by Cambridge University in 2017, there are 2.9 million to 5.8 million unique users actively using a cryptocurrency wallet, most of them using bitcoin. Clearly bitcoin has a use as a medium of exchange and unit of account, but will it perform as a store of value? Only time will tell.
Currently bitcoin is valued at 1 bitcoin to roughly $1,850. Quite a valuation for a currency backed only by an algorithmic data mining process married to the good faith and trust of its users. The question remains, will bitcoin users be able to reach into the cybersphere and grab those bitcoins in times of financial stress, or will that wealth simply vanish in a haze of government intervention, cybertheft or internet malfunction.
Where does gold fit into this modern crypto world of finance? For the answer, we return to the basic properties of money. Gold clearly is a unit of account. It is measured and valued against all other major currencies daily. Gold is a medium of exchange. Gold remains a staple of all major central bank reserve assets. It remains valued as a medium of exchange in global trade especially in times of stress. This has been demonstrated most recently by Iran, Venezuela and Greece using gold to settle debts.
The most important use of gold, however, could very well be its property as a store of value. For more than 5,000 years, gold has been synonymous with wealth. Its inherent physical properties have been universally valued. Gold is not tied to any country, financial system or counterparty. It is no one's liability.
In fact, it is the only tangible, liquid, non-financial asset that is practical to own outside the financial system while remaining marketable at transparent prices across the world's financial centers.
This is where the real value of gold lies. It is a store of wealth outside the digital, crypto and cyber worlds of finance. Physical gold greatly reduces, if not totally eliminates, this new, unknown cyber risk. Gold will never just vanish into the ether or be stolen by a phantom hacker on the other side of the planet. So as I watch the news and assess where the risks to wealth lie, I think physical gold is a pretty good place to be. And it sure is nice that it's cheap now relative to most other asset classes.
David Yoe Williams Jr. is a principal at Strategic Gold, a Naples, Fla.-based firm that buys and stores physical gold for investors.
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Is Bitcoin Safer Than Gold? - TheStreet.com
Bitcoin Price Analysis: Nearing a Bubble…but We’re Not There Yet – Bitcoin Magazine
Bitcoin has now shown about eight weeks of consecutive buying, leading into new all-time highs (ATHs) for the past three weeks. Trying to stay objective with mild to extreme euphoria in times like this can be difficult. As someone who was a new trader during the 2013 bubble, the chart is beginning to look very similar.
Market capitalization and trading volume both on exchanges and over-the-counter markets have hit ATHs as well.
Despite being in price discovery mode, there is an established, longstanding trend we can compare the current price against, as well as the entire left side of the chart. Past results dont always predict the future, but they can influence it.
There are a few questions we can investigate:
Is the price near an interim top?
Is the price nearing parabolic conditions?
Will the price continue on the previous trend at the same rate?
Looking at the monthly Bitstamp chart, there have not been too many candles of this proportion. This would suggest we are nearing bubble-like conditions.
Price has also begun to close outside of the longstanding trend. This weekly candle has not closed yet, but if it does close outside of the diagonal, it will be the first weekly candle to do so. This again points to breaking the trend strongly to the upside.
Fibonacci retracement and extensions are admittedly partly magic voodoo, but there are plenty of traders who use and watch them to make the resistance and support levels legitimate. Drawing this Fibonacci from the local high established on March 10, 2017, to the low on January 14, 2015, several Fibonacci extensions emerge as well.
These can be seen as resistance levels, the next being the 1.618 at $2,088. Although the horizontal levels are arbitrary, we can confidently predict resistance based on the fit of the previous horizontals. Most of the prior Fibs match the price. This should be seen less as curve fitting and more as levels that just make sense. Based on the Fibonacci levels alone, there is not necessarily evidence for top or bubble just yet.
We can tease apart the trend even further by using the Fibonacci tool on each previous high and low.
In the trend, a consolidation from the previous high to low has yielded a price that has seen resistance at the 2.272 Fibonacci extension. Currently, the price has exceeded the previous 2.272 Fibonacci extension and shown it was supported based on the multiple candle touches. This suggests price is moving faster than the previous trend as well as closer to bubble-like conditions.
For low-timeframe, intra-day trading, there was a long entry signal when the price cleanly broke the consolidation triangle. On the next correction, pullback or consolidation event, Id expect the support diagonal (green) to remain the same.
Remember that splashy gold parity headline? BTC is now sitting several hundred dollars above it.
Summary
Bitcoin is making ATHs by almost every available metric: price, market capitalization, volume, hashrate, difficulty and fee per transaction.
Although $2,000 is the next milestone and resistance target, the price will likely exceed that level based on the strength and rate at which the price is exceeding current trends.
Watch for signs of a large pullback or correction in the near future, two to three months at the latest, based on previous price history.
Trading and investing in digital assets like bitcoin is highly speculative and comes with many risks. This analysis is for informational purposes and should not be considered investment advice. Statements and financial information on Bitcoin Magazine and BTCMedia related sites do not necessarily reflect the opinion of BTCMedia and should not be construed as an endorsement or recommendation to buy, sell or hold. Past performance is not necessarily indicative of future results.
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Bitcoin Price Analysis: Nearing a Bubble...but We're Not There Yet - Bitcoin Magazine
Bitcoins – Are You Kidding Me? – Seeking Alpha
I had planned to put out our research on "Will there be an ETF Bubble?", but two things came up:
One: This is so outrageous, I had to write about it. In my mind, the only way you can treat absurdity is by laughing at it. See article, unless you have no sense of humor.
Two: I have a couple quoted comments from experts coming in, that will be weighing in on ETFs.
So, next week: "The ETF Bubble"
Now, about Bitcoins: Here's a quick guide: (italics and bold, mine)
What is it:
Crypto-currency
What actually is that? A made up name?
Who invented it? Satoshi Nakamoto (an alias)
When did it debut?
2009 - An actual fact.
What's the hook about it?
It's the first decentralized peer to peer payment network that is powered by users with no central authority or middlemen.
Is it a network or a currency, or what? No controls, no backing and no regulations about it.
Who owns/controls it?
Nobody
Is that anarchy or chaos or both?
Where do you get them? There are about 50 Bitcoin exchanges, 2 in the US, 7 "international," the rest in somewhat civilized countries, including one in China. Comfortable yet?
Where do you use it?
It's hard to tell. It's up to the individual businesses. No directories I could find. About 20 countries may have businesses that take it. There is a Crypto-Currency Foundation in Russia. Um not much help, there.
How is its use protected?
There's a Full Node. I can't even go there, it's too easy.
Is it safe?
The Royal Bank of India has been repeatedly flagging concerns on virtual currencies like Bitcoins, stating that they pose potential financial, legal, customer protection and security-related risks. In recent cyber attacks, "ransomware'' hackers held victims hostage by encrypting their data and demanding them to send payments in bitcoins to regain access to their computers. (Economic Times, 5-17-17). So the answer is:
No.
Is it widely used?
Between 3-6 million people use them.
That's a lot of dupes.
So, how do I get them, then?
"Mining"
Get a shovel, in more ways than one.
Who "runs" it?
Somebody named Gavin Andersen, formerly Gavin Bell; maybe Satoshi Nakamoto, who knows?
Is it a good investment?
Stanford and Princeton say bitcoin has volatility seven times greater than gold, eight times greater than the S&P 500, and 18 times greater than the U.S. dollar. My answer:
No.
Some of the hype tossed by Bitcoin sellers include:
Buy bitcoins with your IRA
Seriously? Sure, reverse mortgage your house while you're at it.
It's a new kind of money
Wait, I thought it was a network?
Buy bitcoins in 30 seconds. So I can lose money at the speed of light. We can double your bitcoin value in 100 hours
You just write it down and give it to me, right?
Earn .025% in daily interest
Is that FIDC insured?
Worldwide payments
To whom?
A control against fraud
Wanna Bet?
Low processing fees.
It costs money to use "money."
Fast peer to peer transactions.
Spend it at the speed of light.
If you're a vendor you can sign up to receive bitcoins.
Then what do I do with them?
The Bitcoin network never sleeps.
You can pay for them anytime.
Choose your own fees.
WHAT? How about -0-?
Some effort may be required to protect your privacy
That's reassuring.
Trust and Integrity, not like banks
Enough, already!
So, here's the worst part:
Last month, the SEC trashed an application to list a Bitcoin ETF. Under corporate pressure (from the financial firms, now). NOTE: IF YOU KNOW OF A WORSE IDEA, PLEASE LET ME KNOW. I'M RUNNING OUT OF MATERIAL.
The SEC said they will review that decision.
An ETF that tracks a mythical digital currency bitcoin that has no financial fundamentals, no earnings except for the collectors, and a handful of peculiar markets.
Based on what I read from the proponents, "Bitcoin is a virtual currency that can be used to move money around the world quickly and with relative anonymity, without the need for a central authority, such as a bank or government. A fund holding the currency could bring more professional investors to the asset and push its price higher."
All in the name of profits, right. Do you think the description is self-serving?
What about risk? SEE "VOLATILITY, ABOVE. At least with Krugerrands, there was a country involved; and, they're GOLD! I could not find Bitcoinistan on any global map.
It is virtual.
There's nothing behind it.
What about cyberscamming or cyberstealing?
Governments have not rushed to endorse it, although some merchants have.
China is going to endorse it as a currency. Does that give you comfort?
It apparently sells for something like $1250 or so, now. Did I hear "BUT, IT MAY GO UP THROUGH THE ROOF. I NEED TO OWN SOME"?
Still, some people will buy it as an "investment." In my opinion, Monopoly money is safer.
Next week: "The ETF Bubble" (with experts)
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I do have serious exclusive research, analysis and opinions on the Marketplace as: The Fiduciary Sale: In Search of the Ethical Advisor. Also see somebodyelsesmoney.com. Thanks.
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Bitcoins - Are You Kidding Me? - Seeking Alpha
3 Must Read Asian Market Stories: Bitcoin Soars, What’s Up With … – Barron’s
Barron's | 3 Must Read Asian Market Stories: Bitcoin Soars, What's Up With ... Barron's While global stock markets look wobbly, digital currency Bitcoin continues to power to new highs. Bitcoin, in which trading volume is dominated by the Chinese, ... |
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3 Must Read Asian Market Stories: Bitcoin Soars, What's Up With ... - Barron's
Here’s why Bitcoin prices rose by 60% over a month – Forbes India
The overall price of the currency has gone up on news that many countries are now making bitcoins legal. Japan has started to accept bitcoin as legal currency with consumer retailer Bic Camera leading the pack. This has resulted in the price of crypto-currency shooting up by 80 percent over the last one month, making Japan the largest bitcoin market in the world. Investors expect a lot more countries to make legal use of bitcoins. However, investors still need to be careful and hold only around 5 percent of bitcoins in their overall portfolio.
Russia has decided to regulate the currency and plans to make it legal in the near future, according to Bloomberg. Australia will accept bitcoins as legal currency from July 2017 and it will also be exempt from goods and service tax. In early March, the SEC rejected a proposal to launch an exchange traded fund (ETF) based on bitcoins. But now there is optimism that it is ready to review the proposal made by the Winklevoss twins who played a role in the creation of Facebook. If the application goes through, the bitcoin ETF will be one-of-its-kind that will allow retail investors to easily hold the asset in their portfolio.
The use of bitcoins surges when economies go through bad patches, political or financial crisis. That is the reason why it is also known as Digital Gold. Take for example, Venezuela. Since the time the country went through a political crisis under the rule of Hugo Chavez on the back of falling oil prices, violence erupted on the streets of the country. People had problems getting out of their homes. In such situations, many middle-class citizens took to bitcoin mining and started purchasing basic everyday items with the use of bitcoins on the internet (for more details listen to the econtalk podcast with Jim Epstein).
Bitcoin analysts feel this is a trend that will be seen in countries where economies are not stable or their home currencies are volatile. Many Chinese are also taking to bitcoins as the yuan continues to fall. China is turning out to be one of the big markets for bitcoin trading.
Similarly, Indians are slowly catching on the bitcoin fever. But most of them are doing it for the wrong reasons. They want to take a quick punt on rising prices of bitcoins and this can be dangerous. The number of downloads for Zebpay, has moved above its 500,000 mark. The exchange in its press release has said the present milestone shows the growing acceptance of bitcoin as one of the most emerging asset class.
While we can agree that bitcoin is an emerging asset class, the only problem is that the price is volatile and the asset class is new. Sceptics feel that the bitcoin is now another investment fad which will go through the dotcom style boom and bust cycle where investors would understand the importance of the technology but will not be able to value the same. A rise in bitcoin prices has led to a surge in Ponzi schemes in India where gullible Indians were made to invest into such schemes. The Reserve Bank of India has cautioned people against the use of bitcoins.
If you are buying bitcoins for the short term, it is a bad idea. But if your horizon is above two years, you can still make returns from here. But bitcoins should not exceed more than 5 to 10 percent of your entire portfolio as there is a lot of volatility associated to the crypto-currency, says Vishal Gupta, CEO, Searchtrade, a bitcoin technology and trading venture.
The currency has been used by terrorists and criminals. The recent Wannacry ransomeware attackers also demanded payments in bitcoins which bothers regulators or countries who want to legalise bitcoin as a currency. But countries are working out solutions and Japan and Australia are showing the way.
If more countries make it a legal currency, the chances of the price going up is high. Besides, the number of bitcoins that will ever be mined will be restricted at 21 million. Today the total number of bitcoins mined works out to 16.33 million. The next 4.6 million bitcoins will take some time to mine as bitcoin miners will be constrained in terms of computing power. So there are more reasons to believe that the price of this crypto-currency should ideally go up from here as well. But buyers will have to be careful and study this currency before investing. Here are some resources about bitcoins: ## Major World Events That Affect Bitcoin's Value
## Writer, reporter, and film producer Jim Epstein talks with EconTalk host Russ Roberts about mining Bitcoins in Venezuela as a way to import food.
## Nathaniel Popper of the New York Times and the author of Digital Gold talks with EconTalk host Russ Roberts about Bitcoin. Can Bitcoin make it? What went wrong with Mt. Gox? Why did Ross Ulbricht, the creator of Silk Road, just get sentenced to life in prison?
## In crisis-ridden Venezuela, mining this digital currency is providing a lifeline but comes with the risk of arrest ## Making Money: Promise and peril in the Indian bitcoin economy
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Here's why Bitcoin prices rose by 60% over a month - Forbes India
Companies Stockpiling Bitcoin in Anticipation of Ransomware Attacks – NBCNews.com
One of Bitcoin enthusiast Mike Caldwell's coins in this photo illustration at his office in Sandy, Utah, from September 17, 2013. JIM URQUHART / Reuters file
So far, WannaCry ransoms have grossed a little more $80,000, Chainalysis reported. That's not a huge amount considering the malware's far reach. Also, most of the money was grossed via individual transactions, which means large companies likely didn't find paying the ransom necessary.
Nevertheless, many companies still feel compelled to keep Bitcoin on hand in case of future ransomware attacks.
"I've often heard expressed that intelligence agencies and law enforcement act on a reactive basis," said Dr. Simon Moores, Britain's former technology ambassador and chairman of the annual international e-Crime Congress. "Once it's into your system, there's not much they can do about it."
Related:
Moores explained that companies have accepted this type of hacking as reality, according to Citrix's findings. Although he declined to name companies, he said numerous organizations had told him privately that they keep electronic cash on hand in case of attack.
At times, they don't have another option.
"It's all well and good to catch up to the actors and prosecute them, but that doesn't help you if you happen to be a financial institution or a business and data is mission critical," Moores told NBC News.
And it's become more and more necessary as the rate of these malware attacks continues to increase.
According to Beazley Group, the number of ransomware assaults quadrupled in 2016. It projects that attacks will double in 2017 already noting a 35 percent uptick after the first financial quarter. That increase didn't account for the most recent cyberattack.
The insurance group, which specializes in cyber risk, has helped manage more than 5,000 hacking incidents since 2009. It said ransomware, "from the bad guy point of view," is low risk and high reward. It's not particularly sophisticated, but its massive volume will eventually lead to a payout.
"It really is knocking on a bunch of doors, if you will," Wice said. "If someone answers, you have access to encrypt their data. If they don't know any better and they're unsophisticated and don't know how to stop ransomware to stop hitting them, then they can be an easy target."
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Companies Stockpiling Bitcoin in Anticipation of Ransomware Attacks - NBCNews.com
Bitcoin Is An Asset, Not A Currency – Forbes
Forbes | Bitcoin Is An Asset, Not A Currency Forbes Over the past year and a half Bitcoin has been on a spectacular run, rising in value 140% in 2016 and now an additional 49% in just the past month. This surge in value has invigorated Bitcoin backers convinced this boost in value makes Bitcoin a more ... Despite RBI warning, 2,500 Indians investing in Bitcoins daily. Here ... Why has bitcoin's value soared? Bitcoin's popular design is being exploited for theft and fraud |
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Bitcoin Is An Asset, Not A Currency - Forbes
Bitcoin Balloons on Overheated Air – Bloomberg
Ever since the dot-com and housing bubbles popped in 2000 and 2008, spotting bubbles has become a national obsession. Investors have spotted bubbles in bonds, credit, equities, gold -- you name it -- over the last several years.
I wouldnt use the B-word to describe any of those investments -- yet. In fact, I wouldnt even nominate any of them for Most Likely to Bubble Over. I would give that distinction to a certain cryptocurrency that is quickly making its name and fortune: Bitcoin.
Bitcoin has all the attributes of a bubble in the making. First, its radically new. Its a digital payment system that allows users anywhere in the world to transact directly without interference from intermediaries, governments, regulators or central banks -- at least for now. Transactions are administered by a decentralized network of computers, much like the internet.
In his book about the 17th-century tulip bubble in Holland, "Tulipmania," British journalist Mike Dash points out, It is impossible to comprehend the tulip mania without understanding just how different tulips were from every other flower known to horticulturists in the 17th century. The same could be said about the internet in the 1990s and about digital currency today.
Second, Bitcoin is shrouded in secrecy. Buyers and sellers of Bitcoin can trade anonymously, which makes the digital currency a favorite of criminals and hackers demanding ransom. Its origins are shrouded in mystery. Its creator goes by the name of Satoshi Nakamoto, but it's unclear who that person is or if it's even one person. That, too, is reminiscent of another bubble. At the height of Englands South Sea Bubble in 1720, one company floated shares "For carrying-on an undertaking of great advantage but no-one to know what it is." Of course, that didnt stop investors from throwing money at the company.
Riding the Wave
In 1720, share prices of the South Sea Company rose 400 percent in three months and then collapsed just as quickly
Source: ICF working paper, New Evidence on the First Financial Bubble by Rik Frehen, Will Goetzmann and Geert Rouwenhorst Note: European date format.
Third, Bitcoin has no value other than what a buyer is willing to pay for it, which makes it susceptible to the argument that underlies all bubbles. Namely, that any price is appropriate. But theres already reason to worry that Bitcoin's price is excessive. An investment in Bitcoin has returned a breathtaking 351 percent annually since its inception in July 2010 through Tuesday. To put that in perspective, an investment of $100 in Bitcoin from the beginning would be worth close to $3 million today. Its not easy to justify that kind of return for any investment.
Digital Gold
The price of Bitcoin is up 3 million percent since July 2010
Source: Bloomberg
Bitcoin is similar to other currencies and commodities such as gold, oil, potatoes or even tulips in that its intrinsic value is difficult -- if not impossible -- to separate from its price. But there are governments standing behind currencies and reliable currency markets for exchange. And with commodities, investors have something to hold at the end of the transaction. Bitcoin feels more speculative because its just digital ephemera.
That isnt true for all investments. Stockholders are entitled to a share of a companys assets, earnings and dividends, the value of which can be estimated independent of the stocks price. The same can be said about a bonds payments of principal and interest.
This distinction between price and value is what allowed many observers to warn that internet stocks were absurdly priced in the late 1990s, or that mortgage bonds werent as safe as investors assumed during the housing bubble. A similar warning about Bitcoin isnt possible.
During the dot-com craze, Warren Buffett was asked why he didnt invest in technology. He famously answered that he didnt understand tech stocks. But what he meant was that no one understood them, and he was right. Why else would anyone buy the NASDAQ 100 Index when its price-to-earnings ratio was more than 500 times -- a laughably low earnings yield of 0.2 percent -- which is where it traded at the height of the bubble in March 2000.
Internet Gold
The NASDAQ 100 Index's spectacular rise and fall within five years embodied the dot-com bubble
Source: Bloomberg
Thinking back on investors credulity during the last two bubbles, I cant help but wonder if buyers of Bitcoin understand what theyre invested in. They would be wise to ask themselves that same question.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story: Nir Kaissar in Washington at nkaissar1@bloomberg.net
To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net
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Bitcoin Balloons on Overheated Air - Bloomberg