As the value of one Bitcoin nears the symbolic $10,000 mark, warnings are growing that its bubble is about to burst.
Bitcoin’s value has risen by more than 800% since the beginning of the year. By comparison, the FTSE 100 rose just 3.8% over the same period. One bitcoin is currently seven times more valuable than an ounce of gold and its market capitalisation now exceeds that of IBM, Disney or McDonald’s, according to Neil Wilson of ETX Capital.
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The big question is whether investors will choose to cash in once the price hits $10,000 or keep faith with the virtual currency in the hope it will continue to soar.
Unregulated and bypassing traditional banking systems, the growth of the global cryptocurrency market, which is now valued at £300bn, “is of increasing concern to international regulators”, says the BBC.
Reuters says these private currencies keep central bankers awake at night because “they threaten their control of the banking system and money supply, which could undermine the monetary policies they use to manage inflation”.
China and South Korea have already banned any new virtual currency launches and have been shutting down exchanges on which they are traded. J.P. Morgan Chase’s chief executive, Jamie Dimon, recently described Bitcoin as “a fraud” adding: “It’s just not a real thing, eventually it will be closed.”
Despite repeated concerns over its volatility and associations with money laundering and illegal activity, many well-respected hedge funds have begun including virtual currencies such as bitcoin in their portfolios.
“This has felt like the latest, maddest speculative bubble, a tulip fever for the hi-tech era”, says BBC technology correspondent Rory Cellan-Jones.
While Bitcoin has seemed in trouble plenty of times before - splits in the community over how it should be governed, robberies at exchanges, warnings from regulators - “every time that pundits have warned the bubble is about to burst, the currency has stuttered for a few days and then gone charging higher”, says Cellan-Jones.