Bitcoin price tumbled, losing a quarter of its value this week as investors turn against the cryptocurrency.
The value of bitcoin had soared, peaking at US$18,674.5 on Monday, but is now trading at US$13992.5 – a fall of 25 per cent.
The acting Reserve Bank governor Grant Spencer this month said bitcoin appeared to be a “classic” bubble.
It was said, TVNZ’s Q+A that bitcoin lacked the stability required of useful currency and was a “speculative instrument” like gold.
“It looks remarkably like a bubble forming to me,” Spencer said.
“Over the centuries we’ve seen bubbles and this appears to be a bit of a classic case … with a bubble you never know how far it’s going to go before it comes down.”
Financial Markets Authority director of capital markets Garth Stanish this month said cryptocurrencies were area where investors had to exhibit considerable amounts of care and understand the risks.
“There is a real risk that your investment could basically be worth nothing.”
But he said that cryptocurrencies’ value could change very quickly.
“It could be a real rollercoaster. It’s really up at the moment, it could crash.
The FMA wanted to encourage businesses wanting to provide cryptocurrency services, such an exchange or an initial coin offering, to get in touch with them early about compliance.
“Part of our mandate is to promote innovation and growth in New Zealand markets. We certainly don’t have the attitude, ‘Oh my god it’s something new we’ve got to completely squash it’.
“We’re keen to harvest the good in these new technologies while mitigating the risks appropriately. In order for us to do that we absolutely need the industry to come and talk to us.”
As bitcoin’s price skyrocketed on private exchanges this year, largely under its own momentum, interest on Wall Street grew. The virtual currency was trading below US$1,000 at the beginning of the year.
But the growing interest in bitcoin has raised questions on whether its value had gotten too frothy.
The US Securities and Exchange Commission put out a statement last week warning investors to be careful with any investment in bitcoin or other digital currencies. Further, the Commodities Futures Trading Commission proposed regulating bitcoin like a commodity, not unlike gold, silver, platinum or oil.
Bitcoin is the world’s most popular virtual currency. Such currencies are not tied to a bank or government and allow users to spend money anonymously. They are basically lines of computer code that are digitally signed each time they are traded.
A debate is raging on the merits of such currencies. Some say they serve merely to facilitate money laundering and illicit, anonymous payments. Others say they can be helpful methods of payment, such as in crisis situations where national currencies have collapsed.
A security based on the price of bitcoin, the digital currency that has soared in value and volatility this year, began trading on the Chicago Mercantile Exchange on Sunday.
The CME Group, which owns the exchange, opened up bitcoin futures on Sunday. The futures contract that expires in January opened at US$20,650.
The CME futures, like the ones that CME competitor the Cboe started trading last week, do not involve actual bitcoin. The CME’s futures will track an index of bitcoin prices pulled from several private exchanges. The Cboe’s futures track the price of bitcoin prices on the particular private exchange known as Gemini.
Futures are a type of contract where a buyer and seller agree on a price on a particular item to be delivered on a certain date in the future, hence the name. Futures are available for nearly every type of security out there, but are most familiarly used in commodities, like oil wheat, soy and gold.>