Monday, December 09, 2013

Bitcoin- a fine bubble in a messy financial world

On December 5, David Woo of Bank America Merrill Lynch issued a research report entitled "Bitcoin: a first assessment". Woo identifies the three things that need to happen for Bitcoin to be worth what it currently is:
Our fair value analysis suggests that to justify the current Bitcoin valuation, it will need to (1) account for at least 10% of all global e-commerce B2C transactions, (2) become one of the top three players in the money transfer industry, and (3) acquire a store of value reputation close to silver.
 "Is Bitcoin a bubble?" asked Woo. "Assuming Bitcoin becomes (1) a major player in both e- commerce and money transfer and (2) a significant store of value with a reputation close to silver, our fair value analysis implies a maximum market capitalization of Bitcoin of $15bn (1BTC = 1300 USD). This suggests that the 100 fold increase in Bitcoin prices this year is at risk of running ahead of its fundamentals." (via, Business Insider).
That report came one day after former Fed Chairman Alan Greenspan was quoted as saying that "Bitcoin is a bubble with no intrinsic value." (here) Yesterday, Bill Fleckenstein was quoted as saying that "Everyone betting on Bitcoin with lose all their money". (here)

Such diverse opinion can only drive the market into a roller coaster, with the price above USD1200 on December 5 and plunged down to USD600 on December 7.

Bitcoin - and the other virtual or digital or crypto currencies out there - came into existence due to fear that existing fiat currencies would continue to be debased due to the unconventional monetary policies undertaken by central banks worldwide. I believe Bitcoin rally is a bubble that will end like all the other manias in the past, such as the Tulip mania in the Netherlands in the 17th century. Until the bubble busts, we will have a very exciting ride. 


1 comment:

Sharinginfoz said...

I do not really trust this electronic money. Just a matter of time, it will go down to below USD100