In the 2010s, various scholars and journalists have claimed that some cryptocurrencies have been involved in, or are displaying the signs of, an economic bubble phenomenon. This has led to extreme volatility in cryptocurrency researchers say could create a bubble because whoever owns the majority of these essentially control the whole market .
Video Cryptocurrency bubble
General
While some have cautioned that the cryptocurrencies may reflect the characteristics of historical bubbles, others argue that cryptocurrency bubbles are indicative of unforeseen technological problems in new economic markets. Although there are usually strict limits on the units to be produced of each cryptocurrency, the value can still legally go to zero in the areas it is banned if it is made illegal to use. There are numerous cryptocurrencies in circulation currently the most important are for Litecoin at 5.5 billion dollars, Ripple at 9.7 billion dollars, Ethereum at 44.3 billion dollars, and the most significant Bitcoins at 185.5 billion. Overall these represent the majority of cryptocurrency market which signify 73% of the total cryptocurrency market value .The intrinsic volatility of cryptocurrency has have tremendous swings in value which change yearly, monthly, and even daily. The main drivers of volatility specifically include a sudden increase in the "buzz" surrounding a cryptocurrency could be understood as a signal of increasing volatility . The high volatility most frequently coincides with high volume and price drops. If market participants are risk-averse, given the same expected mean returns, they would be less willing to hold the cryptocurrency if future volatility increases, which would drive prices down and affect returns negatively . This effect would become evident shortly after the surge in "buzz" or popularity.
Maps Cryptocurrency bubble
Bitcoin
Bitcoin has been labelled a speculative bubble by many including former Fed Chairman Alan Greenspan and economist John Quiggin. Nobel Memorial Prize laureate Robert Shiller said that bitcoin "exhibited many of the characteristics of a speculative bubble". Journalist Matthew Boesler in 2013 rejected the speculative bubble label and saw bitcoin's quick rise in price as nothing more than normal economic forces at work. Timothy B. Lee, in a 2013 piece for The Washington Post pointed out that the observed cycles of appreciation and depreciation do not correspond to the definition of speculative bubble. On 14 March 2014, the American business magnate Warren Buffett said, "Stay away from it. It's a mirage, basically."
Two lead software developers of bitcoin, Gavin Andresen and Mike Hearn, have warned that bubbles may occur. David Andolfatto, a vice president at the Federal Reserve Bank of St. Louis, stated, "Is bitcoin a bubble? Yes, if bubble is defined as a liquidity premium." According to Andolfatto, the price of bitcoin "consists purely of a bubble," but he concedes that many assets "have bubble component to their price".
Researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman claimed that in late 2013, price manipulation by one person likely caused a price spike from USD$150 to more than USD$1000.
Speculation in bitcoin has been compared to the tulip mania of seventeenth-century Holland. Comparisons have been made by the vice-president of the European Central Bank, Vítor Constâncio, by JPMorgan Chase chief Jamie Dimon, by hedge fund manager Ken Griffin of Citadel, and by former president of the Dutch Central Bank, Nout Wellink. In 2013, Wellink remarked, "This is worse than the tulip mania [...] At least then you got a tulip [at the end], now you get nothing." On 13 September 2017, Jamie Dimon compared bitcoin to a bubble, saying it was only useful for drug dealers and countries like North Korea. However, in a January 2018 interview Jamie Dimon voiced regrets about his earlier Bitcoin remarks, and noted "The blockchain is real, You can have cryptodollars in yen and stuff like that. ICOs ... you got to look at everyone individually."
On 22 September 2017, a hedge fund named Blockswater subsequently accused JP Morgan of market manipulation and filed a market abuse complaint with Financial Supervisory Authority (Sweden).
The Guardian, CNBC, Forbes and Evening Standard compared bitcoin to bubbles such as the South Sea Bubble, the Wall Street Crash, the sub-prime mortgage crisis and the Dot-com bubble.
Altcoins
A January 2018 article by CBS cautioned in regards to a cryptocurrency bubble and fraud, citing the British company called BitConnect who received a cease-and-desist order by the Texas State Securities Board, since they promise massive monthly returns but haven't even registered with state securities regulators or cited an office address.
Other comparisons
Economics writer Jason Murphy dubbed the current rise in house prices, bond market, stock market, and bitcoin, the everything bubble.
ICOs
As in 2017 ICO market has surpassed the $1 bln mark, with some of the ICO campaigns including EOS, Bancor and Tezos successfully raising hundreds of millions of dollars. Wired noted in 2017 that the bubble was about to burst. Some investors have flooded into ICOs in hopes of participating in the financial gains similar to those enjoyed by early Bitcoin or Ethereum speculators.
See also
- 2018 crypto crash
- Financial crisis of 2007-2008
- Cryptocurrency and security
References
Source of the article : Wikipedia
0 Comments