Thousand, 2,000 or 3,000 dollars. It could reach ten thousand by the end of the month and will not stop rising. Although almost all the world's markets are slightly positive this year, the bitcoin cryptocurrency has soared to $ 2,650, has more than doubled its value this year alone, reaching new highs almost daily.
But a moment bitcoins itself may be very new but so price movements are not. Actually it begins to look like a bubble and that should worry investors because it is a warning that the financial follies are back and lead to over-investment and wild speculation. And because the bubbles inevitably burst and when it happens, the losses can spread unexpectedly.
If you have been lucky or have been ready and has gathered some bitcoins at the time of the summer you will feel much wealthier. On Monday, the value of bitcoins came to $ 2,200, a record high. If you invested $ 1,000 in the electronic currency in 2010, now it would be worth no less than 35 million (instead of $ 2,500 if he had done in the S & P 500). Not many people are so quick but had accumulated a little when the price sank last in 2014, his money would have almost quadrupled. Only in the last month, the price has risen 61% and has little sign of stopping there.
Will he be a conventional asset?
There are many valid reasons why the bitcoin price increases. It increases its importance along with other criptomonedas as more and more companies accept as payment and regulators as a legitimate investment. It could well leave the technological scene and become a conventional asset, such as the dollar, securities, gold or bonds. In a global economy where more and more businesses are done electronically, it is logical that there is a purely electronic payment system. If the bitcoin is becoming that, the price should rise, especially since there are very few in circulation.
But a price increase of 61% in a month is not normal. No need to spend time debating whether or not a bubble because it is obvious. The interesting thing is what the consequences will be and how much damage could be done when explode.
On one level, the answer might be not much. With so much hype about electronic coins they are not yet a huge financial operation. There are 16,346 bitcoins out there, with a current aggregate value of 35,000 million dollars
You may reach 40,000 or even 50,000 worth millions of dollars when you read this paragraph but in the context of global capital markets is not a large sum. Apple's market has a value of 805.000 million dollars. All the gold in the world reaches a combined estimated price of 8.2 trillion. The market value of US bonds is estimated at 31 trillion. Its importance is not even remotely similar. Associated British Foods, a relatively bland company that has probably never heard of, has a similar to the bitcoins all together and the markets are not going to sink if bankruptcy value.
Three reasons to consider
On another level, however, the bubble could matter much. Here are three reasons why you should worry investors, whether they have criptomonedas in your portfolio or not.
First, like any fever, will lead to over-investment and hence to a misallocation of capital. Just this month, a company called RSK Labs grossed 3.5 million dollars for a "smart contract" bitcoin. Coinbase, a new digital wallet company, raised $ 75 million in funding. Anyone who has time this week might want to dive into a venture capital fund with some innovative idea that has to do with bitcoin.
You may get away with 10 million and a promise of more funding when it runs out. Of course, some will be great ideas and earn a lot of money but many others will be weak and impractical, and miscarry a lot of cash that could have gone to something else more useful.
Then announces the return of fevers. In any prolonged bull market, there are always one or two assets whose price goes crazy. Can be dotcom shares, business space exploration, apartments in central London or hedge fund managers, or if we go back far the actions radio or the South American railway companies. There is always some. When there is a bubble in progress, we know that on the top of a bull market and that sooner or later fall.
Finally, if Bitcoin break, maybe not much harm. In the capital markets may disappear 30,000 million without leaving much trace. The concern is that the Bitcoin are not any active: they are money, although unconventional. As we learned in 2008 and 2009, as the financial system begins to crumble, the whole building suddenly falters. We do not really know what contracts are linked to criptomonedas, which derivatives have hooked them or to what extent they are embedded in the financial system. What is clear is that in a burst will know immediately and losses could spread unexpectedly.
For now, the bitcoin going well. There is no way of knowing what might be its real value. The peak of the rise may be far but when it drops will not only be their owners who are going to suffer.
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