Bitcoin may have captured the imagination of some, struck fear among others, and confused the heck out of the rest of investors, but what is true is that this cryptocurrency has taken all by a storm. Despite legendary investment gurus cautioning investors to stay away, the cryptocurrency is witnessing a mad rush among investors who want to capitalise on the sudden surge in its value over the last week. Bitcoin reached an all-new high on Wednesday and topped the $12,000 mark for the first time ever. However, the dramatic surge may not sustain any longer according to billionaire Thomas Peterffy, CEO of the brokerage giant Interactive Brokers. He believes that the volatile crypto-currency will cause the financial system to buckle and trigger a crisis similar to 2008. In an interview with Fortune, Thomas Peterffy said that Lehman crisis type fraud and imminent Fed hike are likely to act as possible triggers.
Lehman crisis type fraud: “My fear is in the unlikely event something like that happens, we’ll have something like Lehman Brothers — or worse,” he said to Fortune. So, the recent surge recorded in the valuation of bitcoin may be ending anytime soon, as per him.
Fed Rate Hike: The US Federal Reserve is almost certain to raise interest rates later this month, as per market experts. That is a similar challenge faced by other major central banks, who are generally turning away from easy monetary policy put in place since the financial crisis, looking through still-weak wage inflation and overall price pressures for now. This means liquidity will lessen in the markets and hence, the investors will have less money at their disposal to invest in the cryptocurrencies.
RBI cautions investors
Bitcoin reached an all-new high on Wednesday and topped the $12,000 mark for the first time ever. Bitcoin is rallying for the last one year with beating almost all the traditional asset classes, be it equities, gold, or real estate, in terms of annual returns. Since the last month, Bitcoin breached the levels of $7,000; $8,000; $9,000; $10,000; $11,000 and now $12,000. According to the data from Google Finance, the value of 1 Bitcoin topped $12,285 today. According to a leading Bitcoin exchange Coinbase, 1 Bitcoin equalled $12,287. Over the period of last month only, Bitcoin has more than doubled.
India’s central bank on Tuesday reiterated its concerns about Bitcoins, just days after the cryptocurrency hit a record high of just under $11,800, stoking fears that a rapidly swelling bubble could burst in a spectacular fashion.The Reserve Bank of India said it wanted to reinforce its previous message to “users, holders and traders of Virtual Currencies (VCs) including Bitcoins regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such VCs.” The statement was issued after the cryptocurrency, which trades 24 hours a day and seven days a week, climbed as high as $11,799.99 on the Luxembourg-based Bitstamp exchange on Sunday. The RBI had previously said those trading in virtual currencies were doing so at their own risk, given that the central bank has not given a licence or authorisation for any company to deal in such cryptocurrencies.
Legendary investors from India and around the world have time and again cautioned investors to stay away from it. Thomas Carper, a senior United States Senator once remarked, “Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us.”
No fundamental value
Legendary investor Warren Buffett had said in an interview to CNBC in 2014 that bitcoin is a “mirage”, adding that investors should “stay away from it”. In the same interview, Warren Buffett said, “It’s a method of transmitting money. It’s a very effective way of transmitting money and you can do it anonymously and all that. A cheque is a way of transmitting money, too. Are cheques worth a whole lot of money just because they can transmit money?… The idea that it has some huge intrinsic value is just a joke in my view.” Reiterating his belief on Bitcoins and cryptocurrencies, Warren Buffett told Marketwatch in October this year: “You can’t value bitcoin because it’s not a value-producing asset,” adding that it is a “real bubble in that sort of thing”.
The rapidly surging price of Bitcoin, without any underlying asset or value-base, has irked the top banker Jamie Dimon. “Bitcoin is a fraud and will blow up,” Jamie Dimon, the CEO of JPMorgan Chase, said earlier this year, adding, “The currency isn’t going to work.” He pointed out to the absence of an underlying monetary base to support its value. “You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart,” Jamie Dimon said.
Renowned investor Jim Rogers, sometimes referred to as commodities guru, too has sounded a note of caution on the prospects of cryptocurrencies, preferring to stay away from them for now. “I wish I was smart enough to buy cryptocurrencies.” Jim Rogers said in a recent interview with Kitco news. Further, Jim Rogers seemed to suggest that there might be a bubble building up in the cryptocurrency space. “It looks bubblish when you see the kind of price we see in bitcoins,” Jim Rogers said, adding that he doesn’t own any of the cryptocurrencies. “I certainly don’t know which one will come out on top, or if anyone comes out on top. But, I don’t own any.”