Bitcoin’s contentious bid for legitimacy
Instead of bringing clarity, an impressive price surge last week accentuated the differences within the financial industry about the future of the bitcoins. Opinions range from those asserting that we are witnessing the birth and maturation of a new global currency to those who argue that the phenomenon is a “fraud,” with a large middle either reserving judgment or arguing that it will last but currently may risk being in the midst of a speculative price bubble.
Your position in this debate will depend to a significant extent on where you come out on the following three issues. These three factors will likely play an important role in determining bitcoins’ prospects, both in the short- and longer-term.
You should come to your own conclusions, but my view is that:
The technology underlying cryptocurrencies is here to stay, including in improving cost-effective payments systems and reducing their security vulnerabilities. Yet the bitcoin adoption rate may prove slower and bumpier than the predicted by the strong believers, whose overall number is probably still relatively small compared with speculators and short-term momentum players. In addition, shorting facilities will eventually emerge.
As a result, current holders could face a significant risk of sharp price corrections in the context of greater two-way price volatility. But then again, I held the same view a few weeks ago when bitcoins were trading at around half their current level. Bloomberg View
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