BITCOIN BOMBSHELL: Cryptocurrency has officially been a bubble for MONTHS, experts say

Friday, December 15, 2017
By Paul Martin

BITCOIN has been a bubble since February when its price passed $1,000 (£747), according to the first study into the driving forces behind the price of the cryptocurrency.

By REBECCA JONES
Express.co.uk
Fri, Dec 15, 2017

An academic research paper published by Anglia Ruskin University examines three fundamental drivers of bitcoin prices: the difficulty of “mining” a coin, the speed of this process and the volatility of returns.

Based on these metrics, the paper concludes bitcoin has been a bubble since it passed the $1,000 point in February 2017.

Since then the price of Bitcoin has surged to more than $17,500 (£13,000) a coin – as of 15 December.

This is the first time such a study has been carried out, with previous analysis of the cryptocurrency – particularly those claiming bitcoin is a bubble – based on historical market events not relevant to the new online currency.

According to Dr Larisa Yarovaya, who led the study, February marks the point at which bitcoin stopped functioning as a currency, and began to behave like a speculative financial asset – putting the cryptocurrency into the crash danger zone.

At this stage, bitcoin diverged from its fundamental drivers – which in fact should temper its value as the speed at which new bitcoins can be created is slowing significantly – and began surging in price based purely on buying and selling by price speculators.

Dr Yarovaya told the Express: “We have identified that Bitcoin is in a bubble, but we can’t confirm the true price of it. All of the financial analysis of bubbles is based on historical data, as we don’t have any for bitcoin so we will have to wait until the Bitcoin bubble bursts.”

The study found that the value of Bitcoin has to date been 26 times more volatile than the performance of the S&P 500 index – which tracks the share prices of the US’s 500 largest companies.

However, the study also found that Bitcoin could potentially become a stable financial asset if usage as a currency grows, volatility decreases and it attracts market and economic influence.

In doing so, Yarovaya claims that Bitcoin may become a more balanced investment vehicle, driven both internally and externally.

She said: “Initially, cryptocurrency was a form of money that was used for transactions but now it is behaving like a financial asset. […]

“So now we have to figure out what the place of cryptocurrencies is in the contemporary financial system and what risks it presents for that system.[…] What’s the use of it? What is the value of it – that is the biggest question.”

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