Bitcoin, the world’s most popular cryptocurrency, increased in value to over $11,434 this week, before shrinking 21% back down to $9,009 in a ‘volatile trade rebound’.
Bitcoin’s highest peak to date came less than 24 hours after the coin broke $10,000 per coin. According to the Financial Times, the value of Bitcoin has risen twelve-fold over the course of this year, the largest gain of all asset classes (financial securities).
Despite the ups and downs over the course of this week, it’s difficult to deny the rise in the popularity and value of Bitcoin and other crypto-currencies. The coin has increased so significantly in value over such a short period of time that ‘mining’ the currency has become an industrial operation, and now consumes more electricity worldwide than the 159 countries.
But the coin has also revealed itself to be highly sensitive to market trends. Earlier this year, investment firm JP Morgan slammed Bitcoin as a ‘fraud’, loudly enough to knock value off the currency. However, in a reversal the company then bought 19,102 Exchange-Traded-Notes (ETN), valued at around 95 Bitcoins, or $500,000.
Experts such as the Financial Conduct Authority have warned that the unprecedented rise of Bitcoin is being led mostly by enthusiasts, and have reminded investors that cryptocurrencies are ‘speculative’. Bitcoin’s ongoing instability has led others to compare it to ‘tulip mania’, a period in the early 17th century when the price for the newly popularised flower reached extraordinarily inflated prices before collapsing catastrophically.
“We’re watching history,” said Rich Ross, the head of technical analysis at investment bank Evercore. “It is a classic bubble and bubbles go up a lot. It is a mania and the best thing about it is you can’t value it, like trading technology stocks in the ‘90s.
“It is not that it cannot go up more, but you have to expect the volatility that we saw today,” Ross added. “In two weeks something has gone up more than 100% so you have to expect the downside to be commensurate.”
As millenials increasingly abandon the mainstream banks for fintech and cryptocurrencies, one recent investor, Michael Hardie, a Db2 Database Administrator, told DIGIT: “This is all down to personal speculation. I personally do not see it crashing.
“With everything becoming electronic in modern day, I truly believe currency is likely to do the same. Crypto has been picked up at a substantial rate in the last year and I cannot see the train stopping anytime soon. In fact, for many crypto-currencies, it is only just beginning.
“I have no plans to withdraw from my portfolio. In fact, I plan to invest all the money I can each month. Effectively, using these cryptocurrencies as a savings account.”