While analysts and traders see this phenomenal rise as a bubble, many market participants opine that its burst will have a limited fallout given its market capitalisation.
On Monday, with the price of bitcoin skyrocketing to one fifth of its value, marking a new milestone for the cryptocurrency, Asian markets climbed to a new high midst optimism of global growth.
On Sunday evening, the most-traded contract on the Chicago-based CBOE Global Markets exchange XBTc1 opened at $15,460 in NY, before it jumped to a high of $18,700, a gain of 21%. Their last price was quoted at $17,550, a premium of more than $1,600 to the price on Gemini Exchange.
Incidentally, the futures are cash-settled contracts that are based on the auction price of bitcoin in USD terms on the Gemini Exchange,owned and operated by Cameron and Tyler Winklevoss.
Since the start of this year, the bitcoin has taken off at a gravity-defying 1500% and has attracted institutional interests.
As per Grant Spencer, the acting governor of the Reserve Bank of New Zealand, the bitcoin appears to be a “classic case” of a bubble.
“With a bubble you never know how far it is going to go before it comes around,” said Spencer to TVNZ.
According to some market participants, the fallout of the bubble bursting is likely to be limited given its current market capitalization.
“Bitcoin’s market capitalization is currently around $240 billion, which is much smaller, say, than the value of gold outstanding,” said Andrew Kenningham, an economist at Capital Economics.
He went on to add, “If the price of bitcoin fell to zero today, the paper losses would be equivalent to a 0.6 percent fall in U.S. equity prices. As most investors have bought bitcoin at much lower prices, the relevant losses would arguably be smaller.”