Technology
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).