the bitcoin bubble

The value of Bitcoin cryptocurrency, worth US$1,000 at the beginning of the year, has soared to more than US$16,000. Would its crash hurt the global economy? Not in the opinion of the Financial Times. But there are other reasons to control bitcoin trade. Here are two paragraphs from an editorial in tomorrow’s newspaper.

Of course, bitcoin could crash to zero. A lot of paper wealth would disappear. But bitcoin is not a bank. It is not highly leveraged, and it seems to have been used as collateral in only a limited number of cases. Much of its nominal value is in essence “found money”. So there is limited cause for worry — until the value gets much higher, or much more leverage seeps into the financial ecosystem surrounding the cryptocurrency. This could happen. Regulators need to follow events closely, and insist on high-margin requirements and tight risk controls for trading in derivatives.

While there are no legitimate, non-speculative reasons to buy bitcoin, there are of course significant illegitimate ones. So long as it retains value, bitcoin is a useful tool for tax evaders, money launderers, and anyone who wishes to avoid the rules and regulations that govern traditional fiat currencies. So while it is not necessary to put up regulatory barriers to trading bitcoin, the points where it connects with traditional currencies, banking systems, and tax regimes should be carefully controlled. Innovative technology is not a licence to break the law.

Don’t worry about bitcoin — at least not yet“, Financial Times, 8 December 2017 (gated paywall).

 

One Response to “the bitcoin bubble”

  1. Larry says:

    From today’s NY Times:

    The fringe communities that drove Bitcoin in its early years are playing a much less important role in the current rally.

    Many investors have said the most important factor driving the current enthusiasm is the entry of hedge funds and other institutional investors.