Bitcoin and other “cryptocurrencies” are big money, virtually as big as Goldman Sachs and Royal Bank of Scotland combined.
The price of a single bitcoin hit an all-time high of above $3,500 this week, dragging up the value of hundreds of newer, smaller digital rivals in its wake. Now some investors fear a giant crypto-bubble may be about to burst.
It has been a year of unprecedented growth for the largely unregulated market, with dozens of new currencies appearing every month in “Initial Coin Offerings” or ICOs. They have achieved value almost instantly, drawing in those who are eager to get in and make a quick buck.
At the start of 2017, the total value – or market cap – of all cryptocurrencies in existence was about $17.5 billion, with bitcoin making up almost 90 percent of that, according to industry data firm CoinMarketCap.
It is now around $120 billion – around the same value as Goldman and RBS together – and bitcoin makes up only 46 percent.
Bitcoin Cash, a clone of bitcoin that was split off from the original last week by a rival group of developers, was valued at more than $12 billion less than 24 hours after it had started trading.
“It’s just created new value out of nowhere,” said Rob Moffat, a partner at Balderton Capital, a London-based venture capital firm who focuses on fintech. “There’s no fundamentals behind any of this – it’s all based on public perception, so you can start to see some really strange phenomena.”
For an interactive Reuters graphic of the top cryptocurrencies, click on: http://tmsnrt.rs/2gWgyLc
Cryptocurrencies – so-called because cryptography is used to keep transactions secure – allow anonymous peer-to-peer transactions between individual users, without the need for banks or central banks. They use blockchain technology, a shared record-keeping and processing system that means digital money cannot be copied and spent more than once.
Billionaire U.S. investor Howard Marks likens the market to the dotcom bubble of the turn of the century – whose demise he predicted. He said in a recent investor letter that digital currencies were an “unfounded fad … based on a willingness to ascribe value to something that has little or none beyond what people will pay for it”.
But advocates of cryptocurrencies say 2017 is just the beginning of bull run. They argue the finite nature of these currency units – there will never be more than 21 million bitcoin, for example – as well as the technological innovation that underpins them will ensure their enduring value.
“The idea of this thing being a bubble is silly. We’re in the bottom of the first innings,” said Miguel Vias of Ripple, the third-biggest cryptocurrency, who was previously global head of precious metals and metal options at CME Group.