Share Prices & Company Research


06 December 2017

Bitcoin: Bubble set to burst or great innovation?

Phillip Wong, investment manager, examines the current craze for the cryptocurrency.

The current craze over Bitcoin reached another landmark level towards the end of November as the cryptocurrency hit US$11,000, gaining 15 per cent in one day. But, if there was ever a sign that this area is fraught with danger, one only has to look at the 21 per cent drop to US$9,000 in under 24 hours on Thursday 30th November.

This sharp rise and fall has sparked comparisons with previous market boom and bust periods, such as the 17th century Dutch tulip bulb craze and the tech crash of 2000. The meteoric rise of Bitcoin has been extremely profitable for those that had the nerve to invest at an early stage and, when there are returns to be generated and a market to satisfy, invariably people jump onto the bandwagon. Indeed, JP Morgan boss Jamie Dimon is considering a U-turn on his comments back in September. Back then, he commented that if he found any of his employees trading the cryptocurrency, he would fire them. Mr Dimon, one of the fiercest critics of Bitcoin, also commented: “The currency isn’t going to work. You can’t have a business where people can invent a currency out of thin air”.

Now though, the bank is weighing up serving its clients through offering futures contracts trading. More recently, there has been further traction following plans by Nasdaq to launch a Bitcoin futures contract next year. This would open the market to a wider audience. However, the jury is still out over the credibility of Bitcoin given that it is still largely unregulated. Countries such as China and South Korea have banned any new virtual currency launches and have shut down exchanges on which they are traded. Only time will tell if Bitcoin goes down in history as one of the great boom and bust stories, or a disruptive innovation that becomes integral to the financial system. Bank of England Deputy Governor Jon Cunliffe said investors should “do their homework” before investing in the digital currency and, bearing in mind the recent volatility, investors can expect further market swings through 2018.

Sticking with currencies, the Pound reached a two-month high last week as renewed optimism over a Brexit deal swept the markets. This has acted as a lid on any further progression within the FTSE 100, which remains heavily skewed towards overseas earners. Reports emerged that the UK will honour its commitments to the EU for an increased amount of €100bn, which would facilitate trade agreement discussions and a two-year transition period. Given the timeframe that it has taken to get to this potential agreement, and the continued difference of opinion between the government and the EU on several issues, there still remains a long way to go and one can expect equally difficult trade negotiations that will divide opinion.     

Investments and income arising from them can fall as well as rise in value and you may lose some or all of the amount you have invested. Past performance and forecasts are not a reliable indicator of future results or performance. Tax treatment depends on the specific circumstances of each individual and may be subject to change in the future. Please note that this article is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.


Bitcoin: Bubble set to burst or great innovation?
Continuing our Personal Service: View our Latest COVID-19 Update: 11th June 2021
We use cookies on this site to improve your experience and help us provide you with a better website. An explanation of the cookies we use and their purpose can be found within our Cookie Policy. Your continued use of this site means you consent to the use of cookies.