A couple of days ago, the price of digital currency Bitcoin reached a new all-time high as it passed $6,300 (£4,788). Yet Warren Buffet has called it an “Enron in the making”. So what’s the truth?
Bitcoin is up 500% so far this year, having traded at $968 on 31 December – an astonishing increase by any measure. At around $100bn, its market cap is now bigger than Nike ($92bn).
Little wonder, then, that many pundits are calling it a bubble – comparing it with the Dutch tulip bubble of the 17th century that saw the price of a single tulip bulb pushed to more than ten times the annual income of a skilled craftsman.
Among those calling out the rising Bitcoin valuation are the likes of billionaire investor and Nobel-Prize winning economist Warren Buffet, who has called it a “mirage”.
"Stay away from it. It's a mirage, basically,” Buffet told CNBC back in 2014. “It's a method of transmitting money… A cheque is a way of transmitting money, too. Are cheques worth a whole lot of money? Just because they can transmit money? The idea that it [Bitcoin] has some huge intrinsic value is just a joke, in my view.”
‘At least you got a tulip’
Nout Wellink, former president of the Dutch Central Bank, famously said of Bitcoin, “This is worse than the tulip mania… At least then you got a tulip [at the end], now you get nothing.”
That view still holds with many top investors. Just a week ago, Saudi Prince Al-Waleed bin Talal called it an “Enron in the making”, referring to the US energy company that filed for bankruptcy in 2001.
“I just don't believe in this Bitcoin thing," Prince Al-Waleed said in an interview with CNBC. “I think it’s just going to implode one day.”
Lack of regulation
Prince Alwaleed, whose company invests in major US companies such as Citigroup and Twitter, said a lack of regulation made cryptocurrencies risky.
“This thing does not make sense. It’s unregulated. It’s not under the control of the US Federal Reserve or any other central bank,” he added.
Within the past fortnight, both Indonesia and Vietnam have banned the use of Bitcoin for payments.
The president of Vietnamese FPT University, Le Truong Tung, told Bitcoin News the state bank believed that if Bitcoin were accepted it would be difficult to control: “Tax evasion, illegal transfers, payments, financing of illegal transactions will arise… the economy will become very complex”.
China shut down all its cryptocurrency exchanges at the end of September, the idea of an unaccountable currency with untraceable transactions clearly unpalatable to a one-party state used to controlling all aspects of the economy.
Digital currency for a digital age
But could it be that Bitcoin is simply a digital currency for a digital age – an idea whose time has come?
According to a vote on leading digital currency research site CoinDesk, 47% of readers (out of more than 22,000) thought a $10,000 Bitcoin price more likely than a bank blockchain project going live or rival currency Ethereum debuting its new blockchain validation mechanism in 2017.
CoinDesk’s view is that while there is always the possibility of a market correction, Bitcoin’s price is likely to continue to rise on its current steady trajectory – though it may hit a psychological barrier at the $6,500 mark. Only a sudden spike would “warrant caution”, it believes.