Technology

It's Like The Dutch Tulip Bubble, Hedge Fund Boss Says Of Bitcoin Surge

Tom Burroughes Group Editor 28 November 2017

It's Like The Dutch Tulip Bubble, Hedge Fund Boss Says Of Bitcoin Surge

The astonishing rise in Bitcoin's price this year is being likened to a textbook episode of a market bubble from centuries ago.

With digital currency bitcoin flirting with the $10,000 mark – up from $731 a year ago – the astonishing rise has prompted one of the world’s largest hedge funds to warn that the price action is a bubble.

Ken Griffin, founder of the $27 billion hedge fund Citadel, said the bitcoin frenzy resembles Holland’s tulip mania centuries ago, according to a report by the South China Morning Post.

“Is bitcoin a fraud? No,” Griffin said in an interview. “But these bubbles tend to end in tears, and I worry about how this bubble might end.”

Bitcoin was conceived in 2008 in the aftermath of the financial crisis and launched the following year. It is effectively a decentralised, online-only currency that uses a technology called blockchain to enable users to circumvent banks' services and transfer holdings without any interference from a bank or third-party institution.

The world’s largest banks are at odds over the new currency (some commentators deny bitcoin is even a currency at all). Jamie Dimon, CEO of JP Morgan, described bitcoin as a “fraud” that would likely “blow up” earlier this year and said he would fire any of his staff found trading it. He eventually said he would no longer talk about bitcoin. Wall Street neighbour Goldman Sachs, however, was said to be weighing a crypto trading unit in response to demand from clients.

Hedge fund manager Mike Novogratz, who is starting a $500 million fund to invest in cryptocurrencies, said last week that bitcoin would end the year at $10,000 (source: Bloomberg). A day later, Fundstrat head of research Thomas Lee doubled his price target to $11,500 by the middle of 2018 (source: Bloomberg).

Ironically, given the negative comments by JP Morgan’s Dimon, his firm is reportedly looking at whether to help clients bet on bitcoin via the proposed futures contracts.

The total market value of digital currencies is more than $300.4 billion (source: Coinmarketcap.com).

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