Are We Standing At the Top of a Bitcoin Bubble?

Top of Bitcoin Bubble

Bitcoin has gained significant price appreciation last year with few shortfalls, hitting the peak of $19,343 in mid-Dec. However, bitcoin price started tumbling since then and fell to around $12,000 level at the end of the last year. It is currently trading just below $14,000. The price of bitcoin declined more than $2,000 compared to a month ago level, up more than 1,600% over the same period last year.

Source: coinmarketcap.com

Several factors added the big swings in bitcoin prices over the last two weeks. Initially, reports of strict regulations and higher taxes on bitcoin miners in China negatively impacted cryptocurrencies.  Moreover, concerns related to the potential ban on cryptocurrency trading from the South Korean government increased the volatility.

Although the bitcoin history suggests big swings in a short-time, Warren Buffett expects a bad end for the cryptocurrencies. Investors and analysts seriously fear that the bitcoin bubble could burst anytime.

Several major fund managers and renowned investors have been suggesting that investors avoid trading bitcoin, while the Securities Exchange & Commision has informed people to “exercise caution” and be wary of scammers.

Buffett said the recent growth in bitcoin and other cryptocurrencies could have a bad end. On the other hand, John Rogers, the CEO at Ariel Investments, said the price of cryptocurrencies and bitcoin could decline sharply lower in the next five years.

Source: Wall Street Journal

Bitcoin is a blockchain technology and it has only an online presence. Moreover, investors don’t have the authority to reverse transactions, making it an eye-catching option for cybercriminals. Several institutional investors are also taking short positions on bitcoin, signifying their bearish outlook.

Overall, it appears that Bitcoin and other cryptocurrencies are experiencing obstacles in wider adoption and their use in the real world. Goldman Sachs has also presented similar stance on bitcoin. Goldman Sachs says it is quite difficult for bitcoin to prosper as real money. The substantial volatility and swings in bitcoin and cryptocurrencies prices also suggest that it cannot work as money. Therefore, investors should remain cautious when trading bitcoin and other digital currencies.   

Featured Image: twitter

Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.
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