As bitcoin becomes more accepted, there are fears of an economic bubble gradually forming as speculators continue to make increasing bets on how far it can rise.
As a disciple and fervent supporter of modern financial innovation, I find it quite fascinating to debate on the crypto-currency phenomenon.
However, mixed feelings have been elicited with enthusiasts and skeptics arguing for and against the debate.
For starters, bitcoin is the fastest-growing digital asset in the world since last year. Commonly known as a crypto-currency, bitcoin intends to disrupt the traditional finance model as it allows people to bypass traditional banking system and traditional payment methods for goods and services – an idea that has evidently caught the imagination of some investors, because its price has surged by more than 900 per cent globally by the close of the year 2017.
Pundits, however, maintain ‘a wait and see attitude’ in view of bitcoin’s increasing value and ever increasing media coverage.
But as bitcoin becomes more accepted, there are fears of an economic bubble gradually forming as speculators continue to make increasing bets on how far it can rise.
Despite the central bank warning the public to exercise extreme caution on these digital assets, the regulatory environment remains unregulated to a great extent unlike South Korea and China where regulations have since been introduced.
Should they realise the emperor has no clothes all together, there could be a rude awakening.
Economists have compared bitcoin’s spectacular rise with past bubbles; the dotcom bubble that began in the late 90s before a painful collapse. The currency has no intrinsic value to those who hold it beyond that ascribed to it by a community of owners.
The dotcom era was worth $2.9 trillion before collapsing in the year 2000, signalling there may be room for the bubble to grow. But the bigger bitcoin continues to grow, the more institutions such as the Capital Markets Authority, Nairobi Securities Exchange and the Central Bank of Kenya are likely to get involved.
Bitcoin enthusiasts argue its price will rise further, viewing volatility risk as an indicator to even higher valuations. They added that it can be used to buy anything, including a car, a house or coffee and pretty much anything that can be bought using real money.
Although bitcoin is also used for many reprehensible activities by people all around the globe, some experts hold the view that it’s here to stay.
Most bubbles historically have been driven by sentiment and stories. A look at the past events, some of the biggest “fads” have changed the way we live our lives.
Think about “the smart phone” and how it changed the way we not only communicate with one another but how we buy things, how we book airline flights, how we bank, how we market our products and businesses.
If you look at the technology that crypto is built on, block chain, this technology could change industries like, banking, cyber security, voting, insurance, retail, and may end up impacting all aspects of our life.
Whether bitcoin is a fad or a sound investment remains a mutually exclusive concept: Enthusiasts may be correct about bitcoin’s potential to revolutionise how the world operates and it could still be a speculative bubble that will cost investors billions when it bursts.
The problem with predictions is that it gives us the illusion of control over our lives. But clearly, we can neither understand nor determine the future. Some argue that bitcoin isn’t a bubble because they think it will transform the world financial system.
They reason that bitcoin itself doesn’t change the world, the block chain technology behind it just might. It could revolutionise the way we keep track of all sorts of things, including paper assets and contracts.
Philosopher George Santayana once said, “Those who cannot remember the past are condemned to repeat it.” If we don’t remember the lessons of the 1990s we might be condemned to repeat them, and get burned by a good idea that got too hot too soon.
However, tech experts say it’s the next major revolution that could change our lives as drastically as the internet once did.
As to what side is right or wrong on this matter, only time will tell. If anything, our financial system could become better because of the competition and costs could drop.
Gordon Ogayo Obura, Kisumu
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