Speculators are buying Bitcoin because they expect to make a quick profit as the value of the cryptocurrency is going through the roof.
Bitcoin has all the trappings of a bubble as ‘old generation’ banks and financial experts warn against investing in the spectacular market.
The new generation of fintech speculators speak out against the warnings, implying everyone who dips into Bitcoin becomes a millionaire.
But Bitcoin is like any other market.
Take antiques. If you buy from a trader and expect to make a profit at auction, the chances are you will lose your money because the trader knows the worth of the item and only sells at market value.
Bitcoin hits a peak
So why would a Bitcoin trader want a customer to profit from the value of their stock in a rising market?
It doesn’t make sense that I would be stupid enough to sell something to you today that could be worth twice as much tomorrow.
And the more people who want to sell Bitcoin increase the supply, which pushes down the price.
Bitcoin topped out at $7,459 a week ago, slumped to $5,857 three days later and back to $7,227 on November 16.
A year ago, the price of Bitcoin was $742. The price surge is explained by many cryptocurrency experts as based around a fork in Bitcoin technology.
Crash is on the way
Bitcoin is primarily a payment system, but the proposed software upgrade planned to widen the base to include other financial transactions.
However, the planned upgrade was cancelled, because another technology, Bitcoin cash is proving popular with businesses.
Bitcoin cash is not Bitcoin, but a separate online currency. Bitcoin cash is hovering around the $1,300 mark, but hit a record high of $2,500 only a few days before.
The Economist’s Buttonwood’s Notebook explains: “If everyone tried to realise their Bitcoin wealth for millions, the market would dry up and the price would crash; that is what happened with the Mississippi and the contemporaneous South Sea bubbles.
“And because investors know that could happen, there is every incentive to sell first. When the crash comes, and it cannot be too far away, it will be dramatic.”