According to BNP Paribas, there seem to be many symptoms of a bubble as far as the prices of crypto-currencies are concerned.
As bitcoin is approaching the $10,000 per unit mark in global markets, investors are getting jittery about the possibility of a bubble in the cryptocurrency.
Data available with Google Trends shows search for ‘Bitcoin Bubble’ hit its highest level (100) early Tuesday around 4.30 am (IST) in the past seven days.
If you input a keyword in Google Trends, it would show that historical interest in the term on a scale of 0 to 100, relative to the highest point on the chart for a given region and time.
According to BNP Paribas, there seem to be many symptoms of a bubble as far as the prices of crypto-currencies are concerned. The key feature is that many participants appear to be buying crypto-currencies because their prices are going up. One of the features that aid the bubble is that there is a hard limit for bitcoin issuance of 21 million, which is expected to be reached only in 2040.
On a year-to-date basis, bitcoin has surged nearly 10 times to $9,739 till November 27 from around 997 it quoted on January 1, 2017. In the domestic market, bitcoin hovered around the Rs 7.35 lakh mark on Tuesday morning.
There are about 17 million bitcoins at present. Market experts believe if bitcoins get adopted more and more, the price will rise substantially as the supply is finite. Limited supply helps entrench the highly speculative nature of the currency. It’s a brilliant feature by the designers.
BNP Paribas in a report said a bubble does not mean that it will burst soon. It depends on a host of factors, not least the possibility of self-fulfilling expectations that the price will continue to rise and this will bring in further participants.
While the dotcom bubble inflated and burst, the capital that was diverted into the sector facilitated the emergence of some of today’s giants such as Amazon and Google. “We are seeing a shift of resources now. Is this a misallocation or seeds of a really worthwhile shift? Time will tell. We suspect crypto-currencies are here to stay,” the brokerage said.