It’s the currency that’s skyrocketed in the last few days – but is it, as the saying goes, no smoke without fire?
Bitcoin, the worldwide cryptocurrency and payment system, has seen itself valued at a record $11,000 (£8,200) on Wednesday after a sharp but often volatile rise this year.
The skyrocketing price may be due to increased speculation. Investors are seen to be piling money into Bitcoin with the dream of increasing their money in a short amount of time.
On Wednesday, Sir Jon — the Bank of England’s deputy governor for financial stability – warned investors to “invest carefully” in Bitcoin, just as it crossed the $10,000 mark.
Others, such as Mike Novogratz – ex hedge-fund manager of Fortress Investment Group – suggested that “Bitcoin could be at $40,000 at the end of 2018. It easily could.”
He added: “This is going to be the biggest bubble of our lifetimes.”
Novogratz, who invested in Bitcoin when it cost $90, said he has started a $500 million fund because of the currency’s ability to transform the market.
Bitcoins are created through a complex process known as mining, and then monitored by a network of computers across the world. A steady stream of about 3,600 new Bitcoins are created a day – with about 16.5 million now in circulation from a maximum limit of 21 million.
Bitcoin has doubled in value in the space of a month – which has led some to argue it is too volatile to be seen as a currency, and warned that a crash is inevitable.
Some have gone even further. The former chief economist of the World Bank, Joseph Stilgilz wants bitcoin banned.
“Bitcoin is successful only because of its potential for circumvention, lack of oversight,” he said in an interview on Bloomberg Television on Wednesday.
“It’s a bubble that’s going to give a lot of people a lot of exciting times as it rides up and then goes down,” he said. “The value of a Bitcoin today is expectations of what the bitcoin is going to be tomorrow.”
He also mentioned: “So it seems to me it ought to be outlawed. It doesn’t serve any socially useful function.”
Bitcoin’s boosters argue that the currency is valuable because its supply is limited to 21 million, a number no central bank can change. But as it come closer to its limit, its rapid appreciation should still worry all who hold it. Like economic crazes before Bitcoin (the Beanie Baby mania, the dot com bubble, or the housing bubble) they all eventually gave way.