Technological and financial breakthrough - or another Tulip bulb craze?
Bitcoin was scoffed at initially as a scam, or, at best, an anti-government crank's fever dream. But the recent surges in prices, followed - rapidly - by equally precipitous declines and further advances, has raised questions about whether this time is different. And maybe for real.
The implication for investors and for businesses is that this could jolt the staid world of corporate finance by injecting it with new methods of funding growth. And the growth in interest suggests there are serious minds employed by global institutions willing to investigate the potential. But as with any new business proposition, the returns could be long term while the risks are immediate. Previously unknown and frequently unverifiable market participants, regulatory disapproval and an absence of legal recourse - to say nothing of technological hacking risk to vulnerable systems - suggest that astute enterprises stay abreast of
developments but remember that all markets eventually revert to the mean. JL
Lily Katz reports in Bloomberg:
On May 25, bitcoin surged more than $300 to a record only to turn tail
and close little changed. It then slumped 8% the next day. That kind of volatility shows the asset’s unreliability as a store of
value. While bitcoin’s value has increased more than 100%, its slice of the pie has shrunk as there are an estimated 700 rivals. Whether it’s Holland’s tulip-bulb craze in the 17th century or the Internet-stock frenzy of the late 1990s, history shows that markets self correct.
