Bitcoin looks “remarkably like a bubble” to the Acting Governor of New Zealand’s central bank, Grant Spencer.
Speaking to TVNZ this weekend, Spencer – who will lead the RBNZ’s Monetary Policy Committee until March – said that bitcoin appears to be a “classic case” of a financial bubble.
“Over the centuries we’ve seen bubbles and this appears to be a bit of a classic case. With a bubble, you never know how far it’s going to go before it comes down,” Spencer said.
A “bubble” tag is assigned when an asset’s price has appeared to quickly and strongly exceed estimations of a reasonable intrinsic value for the asset in question, although a bubble can only truly be known after it has burst. Once an asset’s price appears to be out of touch with reality and begins to attract non-professionals to the investment space, market opinions will typically begin to converge on the possibility of a bubble.
Once a bubble bursts, the aftermath can be ugly. Effected assets will typically lose at least 70% of their value and will do so almost as quickly as they appreciated. Recent financial bubbles include the dot-com bubble (burst in 2000) and the Chinese equity market bubble (burst in 2007).
Bitcoin is, of course, thriving at present amid an environment of exceptional cryptocurrency volatility. Bitcoin is up nearly 1,600% this year, as of writing, to levels above $16,000.
The first ever day of trading in CBOE bitcoin futures saw exchange circuit breakers triggered twice, temporarily halting trading and highlighting the inadequacy of current exchange trading limits – this being an issue highlighted last week by the US Futures Industry Association, who called for exchanges to take additional time for a “more thorough and considered process” for bitcoin trading.
Such was the excitement surrounding the introduction of bitcoin futures, the CBOE’s website experienced temporary outages on Monday as a result of unusually high traffic.
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