Bitcoin: game changer or just bubbles?

Cryptocurrency causes mixed responses

By Yoon Sung-won

A sharp increase of cryptocurrency bitcoin’s price is drawing mixed responses in financial markets worldwide. While many investors are betting on its scarcity value, some finance experts argue it is just a bubble that will soon blow up.

JPMorgan CEO Jamie Dimon fueled the confrontation of perspectives on bitcoin by recently slamming it as a fraud.

“The cryptocurrency won’t end well,” Dimon said during a bank investor conference in New York early this week.

Though it is unclear who invented bitcoin, it was released as open-source software in 2009. It also refers to a peer-to-peer transaction system with a publicly-distributed ledger system called the blockchain.

Bitcoins can be claimed as a reward to a data-keeping work called “mining.” This works by repeatedly verifying new transactions, and collecting and organizing them into a group of transaction records called “block.” Thanks to this system, it is considered extremely hard for hackers to modify the cyber ledger.

The JPMorgan chief’s blast came after a worldwide investment craze in bitcoin this year. As bitcoin offered safer and more convenient trading, it came to have more than quadrupled in value since earlier this year to higher than $4,000 per coin.

On Sept. 2, a bitcoin’s value topped out at $5,013.91. Considering that its per-coin value was only $0.003 when it was first traded seven years ago, its value went up 1.5 million times.

Dimon compared the recent hike of bitcoin value to the abnormal speculation frenzy of tulips in the past.

The tulip bulb market bubble, which is considered the world’s first bubble economy phenomenon, happened in the Netherlands between 1633 and 1637. At that time, nobles bought up tulips and this increased the price of a tulip bulb to make it more expensive than a mansion. The price bubble suddenly blew up and drove the entire Dutch economy into chaos.

“It’s a fraud and is worse than tulip bulbs,” Dimon said. “You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.”

Dimon stressed the company will never trade in bitcoins, saying he would fire JPMorgan traders right away if they started doing it.

Earlier this month, the price of bitcoin slipped after reports that China may ban trading of cryptocurrencies on domestic exchanges, dealing another blow to the global virtual currency market which is worth $150 billion.

Scarcity value

Despite negative perspectives, bitcoin worth more than $2 billion are traded globally every day. In Korea alone, the daily bitcoin trade nears $1.5 billion.

Those who make positive projections on bitcoin’s potential focus on its scarcity value as only a limited number of bitcoins are left to be “mined” like minerals or metals such as gold. Until 2140, only 21 million bitcoins can be produced. So far, about 16.5 billion bitcoins have been mined.

For this reason, some researchers forecast bitcoin’s value may continue going up as time goes on. U.S. investment analysis company Standpoint Research expected that the price of bitcoin may exceed $7,500 within this year.

“Bitcoin is not controlled by a government or a central bank. Its production and flow completely follows the rules of the free market,” an industry source said. “For this reason, it is still hard to know for sure if bitcoin will continue to have its value for a long time or end up just as a bubble.”

Prof. Jung Yoo-shin at Sogang University also said that bitcoin fever is not a bubble.

“Bitcoin will gain significance in the future as an increasing number of top companies like Facebook, Amazon, Alibaba and Tencent are based on digital platforms,” Jung said. “It is too much to call its popularity as just a bubble.”

He also pointed out that China would eventually change its policy.

“China has pioneered itself to mine the bitcoin. Then, do you think that it will scrap it for nothing? I don’t think so,” he said.