The price of the cryptocurrency tumbled to a low of $12,504 (£9,345) as the price swung wildly on Friday morning, according to CoinDesk’s Bitcoin Price Index (BPI). It stood at $13,600 at the time of writing.
Over the past 12 months, Bitcoin, alongside other cryptocurrencies, has attracted a tremendous amount of noise. Year to date, bitcoin’s value has risen by a staggering 1,437%. It’s value was just $916 per bitcoin this time last year.
Mark Ward, head of trading at Sanlam UK, explained these currencies as “virtual money” that can be used to buy and sell items. He said: “They are simply a means of exchange – it allows barter to occur online, in a virtually fraud-proof way.
“Whereas a central bank stands behind and stabilises traditional currencies (in the past one could exchange notes for gold should you ask the Bank of England, and UK bank notes still contain a “promise to pay the bearer” from the UK government itself), there is no bank, corporation or government acting as a backbone to bitcoin.
“This is why the value of cryptocurrencies are so volatile – its value derives from the confidence in the market that tomorrow, the Bitcoin will not be worthless.”
The fall in price has made investors in the industry wary of bitcoin, comparing it to the Dutch Tulip Mania in the 1660s.
During this period, the price of the tulip bulb rose to “more than the cost of a house with an acre of land in the Netherlands, yet the intrinsic value and usefulness remained essentially nothing”, according to Ward.
He added: “But, as with cryptocurrencies, if people decide something has value, then it has value, and only time will tell if Bitcoin is another tulip-mania in the digital world, or will deliver on its promise to displace central banks and hard cash as the primary means of exchange in the future.”
Describing bitcoin and other cryptocurrencies as a type of alternative investment, Neil Birrell, fund manager and chief investment officer at Premier Asset Management said: “To make any investment you need to understand it properly and understand the dynamics that move the price and we cannot claim to have that knowledge with bitcoin. The move in the price is being compared to the Tulip bubble in the 17th century and that didn’t end well.
“There will be serious buyers of it as well as speculators which may well influence the price in different conditions. For example; most commentators are predicting the bubble will burst and the price will collapse as the speculators head for the exit, however, if we did have an unexpected large fall in traditional asset prices such as bonds and equities, we could see more serious investors buying Bitcoin as an alternative asset class.
“The ramifications of a significant fall in the price is a concern and how it unwinds is an unknown. Therefore, as investors in more traditional asset classes and alternatives we understand, we will be watching the bitcoin phenomena warily.”
