Investors have to be cautious with Bitcoin’s volatility and violent price swings
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As Bitcoin gains steam amongst Canadian investors, so do the doubts surrounding its value as a currency. Many industry experts have already given less than positive forecasts for the cryptocurrency in the long-run given its lack of intrinsic value.
Industry expert Larry Berman is one of them. He told BNN that Bitcoin's price volatility and violent swings point to it being a speculative vehicle with an unstable demand. He likened the Bitcoin-craze to how Dutch tulip bulbs became a market bubble in the 1600s.
Also Read: Bitcoin surges after dodging network-upgrade bullet
"The key for all of these things is the confidence that you can easily trade your store of value to. The main difference is that they die. So Bitcoins are not tulip bulbs, but they are a store of value. It now takes more than one month salary for the average person in the world to buy a Bitcoin," Berman expounded.
He furthered, "When you're buying a bitcoin, you are not buying the underlying technology, you don't own an investment in blockchain technology...Unless you are a speculator with a huge tolerance for risk, it’s not something that you should consider in your retirement portfolios."
Looking at GBTC, a tracking fund listed in 2014, Berman noted how it is trading at a 40% premium to its underlying value. The fund has an average premium over the past year of 48%. Meanwhile, over the past month, volatility in Bitcoin has picked up. Over the weekend, it had declined over 20%, only to recover on Monday.
"A currency doesn't have this sort of volatility to it. From a risk perspective as an investment, it's the highest risk category you could possibly imagine," Berman said, "My investment conclusion: Run as fast as you can, or short it."
Berman said the Bitcoin bubble would likely last until its liquidity is challenged.
"For assets with no intrinsic value, history shows that they get hit the hardest. We have already seen a bankruptcy in the sector," he said, referring to Tokyo-based Bitcoin exchange Mt. Gox which announced bankruptcy in 2014.
However, like other financial players, Berman said the potential rests on the blockchain technology, in the way systems like that of Paypal became valuable and useful.
“The Blockchain technology that drives it will no doubt be part of the new world. I believe that the world will move to a paperless currency system within 20 years, perhaps sooner,” he said.
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Industry expert Larry Berman is one of them. He told BNN that Bitcoin's price volatility and violent swings point to it being a speculative vehicle with an unstable demand. He likened the Bitcoin-craze to how Dutch tulip bulbs became a market bubble in the 1600s.
Also Read: Bitcoin surges after dodging network-upgrade bullet
"The key for all of these things is the confidence that you can easily trade your store of value to. The main difference is that they die. So Bitcoins are not tulip bulbs, but they are a store of value. It now takes more than one month salary for the average person in the world to buy a Bitcoin," Berman expounded.
He furthered, "When you're buying a bitcoin, you are not buying the underlying technology, you don't own an investment in blockchain technology...Unless you are a speculator with a huge tolerance for risk, it’s not something that you should consider in your retirement portfolios."
Looking at GBTC, a tracking fund listed in 2014, Berman noted how it is trading at a 40% premium to its underlying value. The fund has an average premium over the past year of 48%. Meanwhile, over the past month, volatility in Bitcoin has picked up. Over the weekend, it had declined over 20%, only to recover on Monday.
"A currency doesn't have this sort of volatility to it. From a risk perspective as an investment, it's the highest risk category you could possibly imagine," Berman said, "My investment conclusion: Run as fast as you can, or short it."
Berman said the Bitcoin bubble would likely last until its liquidity is challenged.
"For assets with no intrinsic value, history shows that they get hit the hardest. We have already seen a bankruptcy in the sector," he said, referring to Tokyo-based Bitcoin exchange Mt. Gox which announced bankruptcy in 2014.
However, like other financial players, Berman said the potential rests on the blockchain technology, in the way systems like that of Paypal became valuable and useful.
“The Blockchain technology that drives it will no doubt be part of the new world. I believe that the world will move to a paperless currency system within 20 years, perhaps sooner,” he said.
Related stories:
Is now the time to invest in Bitcoin?
Blockchain firm gets a shot in the arm
