‘Bubble’ warning as Bitcoin surges

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Spread betting brokers have been warned of a Bitcoin ‘bubble’, as the value of the virtual cryptocurrency surged past $16,000 in the past week, having recorded 50% growth in the period.

The online currency, which is primarily used as an investment vehicle, has been buoyed by news that the Commodity Futures Trading Commission (CFTC) will allow investors to purchase Bitcoin futures for the first time. This has been seen as a legitimisation of the alternative currency’s place in world finance, as investors rush to grab a potentially lucrative share.

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However, not all reactions have been positive. Financial spread betting brokers CMC Markets have warned that the rapid rise in Bitcoin’s fortunes bears the classic hallmarks of a bubble, with “no indication when that bubble will burst”. Certainly, volatility has been a hallmark of the last few days, with Bitcoin’s value varying widely between $15,000 and $17,000.

Investors have variously been reassured that Bitcoin’s popularity is as a result of its crossing into the financial mainstream, thanks to the CFTC announcement, while also warned of a dot-com bubble style crash as investors move on to the next big thing. On this theme, David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, has warned that Bitcoin has morphed from an alternative currency into a speculative investment – but one that lacks any transparency or oversight.

Fears about the currency’s security as an asset were further raised by the high-profile theft of $70m worth of virtual currency from Bitcoin miner NiceHash of Slovenia, and some of the world’s largest brokers have openly expressed concerns through the Futures Industry Association, citing concerns about potential manipulation in the underlying spot market.

However, other commentators have been less critical, citing the fear of major financial institutions around the impact of Bitcoin as the reason for the rash of criticism. While CMC Markets reiterated their belief that Bitcoin is a potential bubble, they softened their cautious outlook by noting that bubbles can “keep expanding for much longer than most people think.” This may mean that Bitcoin remains an important factor in the financial market for a long time to come, and may not be the flash in the pan that some commentators fear.

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