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Bitcoin biggest bubble in history, says economist who predicted 2008 crash

The Guardian logo The Guardian 02/02/2018 Angela Monaghan
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Watch: Bitcoin 'biggest bubble in history' (Bloomberg)

The economist credited with predicting the 2008 global financial crisis said a 12% fall in the value of bitcoin on Friday was the latest proof that the cryptocurrency was the biggest bubble in history and destined for a crash.

Nouriel Roubini, professor of economics at New York University, said bitcoin was “the mother of all bubbles” favoured by “charlatans and swindlers” as it fell below $8,000, marking a 30% drop since the beginning of the week as investors became increasingly twitchy about a clampdown on cryptocurrencies by regulators.

Related: Crypto carnage: Billions lost in hours

Bitcoin has lost more than half its value since hitting a peak of near $20,000 in the week before Christmas. Roubini said the sharp fall was the beginning of a crash that would see the value of the digital currency plummet “all the way down to zero”.

Bitcoin has dropped 30% since the start of the week. © AFP/Getty Images Bitcoin has dropped 30% since the start of the week. Bitcoin is the first, and the biggest, "cryptocurrency" – a decentralised tradable digital asset. Whether it is a bad investment is the big question. Bitcoin can only be used as a medium of exchange and in practice has been far more important for the dark economy than it has for most legitimate uses. The lack of any central authority makes bitcoin remarkably resilient to censorship, corruption – or regulation. That means it has attracted a range of backers, from libertarian monetarists who enjoy the idea of a currency with no inflation and no central bank, to drug dealers who like the fact that it is hard (but not impossible) to trace a bitcoin transaction back to a physical person.

The latest sell-off follows reports that US regulators are investigating whether the spike in the price of bitcoin in 2017 was the result of market manipulation. India’s finance minister said the country did not recognise the cryptocurrency as legal tender, pledging to fight their use for “illegitimate activities”.

Digital currencies have also been hit by the news that Facebook is banning all adverts for cryptocurrencies.

Related: The rise and fall of Bitcoin: Investors are learning some very old lessons

Hogarthian image of the 1720 'South Sea Bubble' © Edward Matthew Ward [Public domain], via Wikimedia Commons Hogarthian image of the 1720 'South Sea Bubble'

“Policymakers and regulators are getting worried. Pretty much every G20 policymaker is talking about a crackdown,” Roubini told Bloomberg Television. “We can’t allow it to become the next Swiss bank account for use by criminals and people evading tax.”

Critics have warned bitcoin has all the hallmarks of a classic speculative bubble that could burst, like the dotcom boom and the US sub-prime housing crash that triggered the global financial crisis.

Bitcoin is not recognised by any central bank and currently allows people to bypass banks and traditional payment methods to pay for goods and services. However, the spike in the price is forcing regulators and institutions to consider how to respond.

“The wheels are coming off the bitcoin bandwagon,” said Neil Wilson, analyst at ETX Capital. “The regulatory crunch appears closer than ever and sooner or later this market could be headed back down to earth. Selling pressure at the moment is intense as there has been nothing but bad news for bitcoin bulls of late.”

NOW SEE: 'It's you don't get rich, it's your own fault': Teen Bitcoin millionaire says anyone can do it - but you must buy in NOW

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