The jury is still out on whether bitcoin is in the bubble zone. But investors who invested Rs 1,00,000 in the cryptocurrency in November 2010 have seen their wealth swell into a humongous Rs 625 crore in just seven years.
The crypto-currency has surged from nearly Rs 10 per bitcoin to above Rs 6,20,000 in India during this period.
In global markets, the e-currency is just a few hundred dollars shy of $10,000. It trades at $9,650 at present against $0.22 in November 2010, marking a 43,86,264 per cent jump (dollar terms) during this period.
BNP ParibasBSE says there are many symptoms of a bubble in crypto currencies. The key feature is that many participants appear to be buying crypto-currencies just because their prices are going up. One of the features that aid the bubble is the fact there is a hard limit for bitcoin issuance of 21 million, which is expected to be reached in 2040.
At present, there are about 17 million bitcoins. Market experts believe that if bitcoin is adopted more and more, price is likely will rise substantially as the supply is finite. Limited supply can help entrench the highly speculative nature of the currency. It's a brilliant feature by the designers.
BNP Paribas in a report said, "Bubble does not mean that it will burst soon. It depends on a host of factors, not least the possibility of self-fulfilling expectations that the price will continue to rise and this will bring in more participants. While the dotcom bubble inflated and burst, the capital that was diverted into the sector facilitated emergence of some of today's giants like Amazon and Google. We are seeing a shift in resources. Is this a misallocation or seeds of a really shift? Time will tell. We suspect crypto-currencies are here to stay."
In recent times, China has already acted to close down exchanges, though reports suggest that 70 per cent or more of "mining" takes place in China, partly as a result of cheap electricity.
A potential threat to central bank seignior age, worries about money laundering, financial stability, tax avoidance and crime, all make regulatory moves elsewhere possible.
On the other hand, CME plans to launch a futures contract and efforts to possibly list ETFs in the US show that the market for crypto-currencies may take further large steps going forward.
Bitcoin is not regulated, but is traded on specialist platforms. Launched in 2009 as a bit of encrypted software written by someone using the Japanese-sounding name Satoshi Nakamoto, bitcoin is controlled and regulated by its community of users.
Central banks and a couple of global financial services companies believe that virtual currencies can be used for illegal purposes and are highly speculative in nature.
"We have a biased view on bitcoin, as we are one of the leading bitcoin exchanges in India. We advise investors to invest in bitcoins in a systematic manner," said Sandeep Goenka, co-founder, Zebpay.
Deutsche Bank recently joined the ranks of those warning against the virtual currency as an investment. "I would simply not recommend this to the everyday investor," Reuters quoted Ulrich Stephan, chief strategist at Germany's largest lender.