As per an article on MarketWatch, a guy named Koch purchased 5000 bitcoins for $27 back in 2009, and as time passed by, he forgot about his investment. In 2013, this cryptocurrency became the talk of the town, and consequently, the investment of $27 fetched him a 3,281,500 percent return amounting to $8,86,000. A tremendous hike only in four years!

Bitcoin is still the principal attraction for investors aiming to invest in cryptocurrencies. Recently there has been a lot of talk about the valuation and market capitalisation of the bitcoin. To surprise or to shock, it is now valued at more than the net worth of one of the world’s top billionaires Warren Buffett and exceeds the GDP of many nations.

What are bitcoins?

Bitcoin is a cryptocurrency which was created by Satoshi Nakamoto so that transactions could be made without the need of any middlemen. To create bitcoins, transactions by users are gathered into blocks that are turned into a complex math solution. The miners using high-powered computers work these solutions out to determine if the transaction performed is feasible or not. Once the puzzle is solved, the transactions are approved, and the miners are rewarded in bitcoins.

This year, the extraordinary price hike of bitcoin helped it gain a much larger market capitalization, and reach remarkable valuations. As per the data available with market tracker Coinmarketcap.com, on 4th December this year, this currency hiked and reached the level of $11,000, indicating a climb of 1000 percent. The estimations say it is likely to reach $14,000 in no time. As per the Indian currency, one bitcoin now costs around Rs. 14 lakh.

The worth of bitcoin

Farming and tourism dominate the economy of New Zealand. As per the data released by World Bank in July, the value of its national economy is $185 billion, which is $5 billion less than that of bitcoins. Additionally, bitcoins surpass the economies of Qatar, Kuwait and Hungary.

The surging value of bitcoins has not left some of the largest investment banks unaffected. As on 1st December this year, the worth of Goldman Sachs Inc. was $97 billion, and that of Zurich based UBS group about $67 billion. So even the combined worth of these two largest banks of the world fails to meet that of bitcoins.

The comparisons continue

Boeing Co. is known for making jumbo jets and holds a market cap of $162 billion. It supplies in more than 65 countries and has around 1,40,000 employees. Contrary to that, bitcoin is yet to complete even ten years since birth and is the creation of a bunch of miners.

The USS Gerald R. Ford, a first of the new class of nuclear-powered supercarriers, was delivered to the US Navy in May this year. It cost the Navy around $13 billion for a single carrier. So, if the bitcoin market cap is put down to buy such carriers, it can do so in ample amounts.

Bill Gates’ total worth is $90 billion, and that of Warren Buffet is $83 billion. They both topped the list of Bloomberg’s Billionaires Index, but when it comes to buying bitcoins, even the addition of their combined net worth cannot buy all the bitcoins existing in the world. And considering all these price fluctuations, Warren Buffett has not shied away from calling this crypto a “Real Bubble.”

Controversy over credibility

As early as in 2014, Warren Buffet was critical about bitcoins, stating, “You can’t value bitcoin as it’s not a value producing asset.” He added, “It is a mirage basically,” at a time when the price was fluctuating dangerously. From around $4,300 at the beginning of October, it surged to more than $6,100 less than a week ago, and he then commented, “People get excited from big price movements, and the Wall Street accommodates”.

Often, bitcoin is compared to the dotcom bubble of the late 1990s, but the price volatility is five times higher in bitcoins, eliminating any chances of a clear-cut comparison between them. Bitcoin has been juxtaposed with the 1980s bubble in Japanese stocks and property, gold in 1970s, US stocks in 1920s and the South Sea bubble in 1720s, but the primary difference is the tremendously high perceived size of bitcoins, which makes it way more powerful and incomparable to these crises.

Apart from Warren Buffet, JP Morgan’s Chief Executive Jamie Dimon, hedge fund managers Howard Marks and Ray Dalio, and Nobel Economist Robert Shiller have also condemned this bubble, speculating that it will end badly, which puts a question mark on the credulity and the risk that it holds.

P.S- This article was originally published on The Qrius (Formerly The Indian Economist)  

By Devanshee Dave

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