Here's Why Bitcoin May Be The 'Bubble To End All Bubbles'

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UBS' global chief economist on Monday said that Bitcoin's rise to feverish heights over the past few months represents a massive bubble, while the Securities and Exchange Commission said it stopped another planned initial coin offering.

[ibd-display-video id=3017249 width=50 float=left autostart=true] "The bubble to end all bubbles continues," the economist, Paul Donovan, wrote in a post on Monday. "Cryptocurrencies only have value if accepted as currencies. However, they cannot be used for the most important transaction in an economy, and cryptocurrency supply can only rise and never fall (making them a poor store of value). To date, using cryptocurrencies requires (effectively) a simultaneous asset sale and purchase of goods or services."

In a recorded daily economics briefing, he added that the rollout of new Bitcoin-tied futures contracts has "fueled the hysteria, but this was a bubble at $6,000 and it's a bubble at $16,000."

The remarks from Donovan, who has expressed skepticism about Bitcoin in the past, add to what has become a near-daily ritual of takes on the cryptocurrency from executives, economists, investors and regulators.

His remarks echo those from Goldman Sachs ( CEO ) Lloyd Blankfein, who has also questioned whether an asset that accumulates or spills thousands of dollars in a day is actually a currency.

"Something that moves up and down 20% in a day doesn't feel like a currency, doesn't feel like a store of value," Blankfein told Bloomberg Television last month.

Those remarks, in turn, echoed something Donovan said in a report in October, according to CNBC .

"A 20-fold increase in bitcoin prices in just two years, and an absence of any fundamental economic backing, cryptocurrency prices are almost certainly a bubble," he wrote.

Folks in the pro-Bitcoin camp argue that it is a misunderstood digital asset that is easier to use and has the potential to transcend politics and central banks. And the cryptocurrency continues to draw attention from mainstream investors. Cboe Global Markets ( CBOE ) launched its Bitcoin futures contracts on Sunday. Futures from CME Group ( CME ) and Nasdaq ( NDAQ ) are set to follow Dec. 18.

IBD'S TAKE:Are Bitcoin, Ethereum and other digital currencies real investments or a speculator's game? Individual investors should be extremely cautious about diving into this new area. Read this feature about Bitcoin risks and possible gains first.

The futures contracts could open up a path for a Bitcoin ETF and give more investors a chance to bet for or against the cryptocurrency without holding it directly. The futures could also allow for more opportunity to take short positions against Bitcoin and potentially tame its whipsaw pricing action.

The cryptocurrency scene in general could also be tamed by growing pressure from regulators. The SEC on Monday said that a California-based company, Munchee, which provides a blockchain-based food review service, had stopped a planned initial coin offering after the agency found that the company's actions "constituted unregistered securities offers and sales."

Last week, the SEC halted what it alleged was a "fast-moving Initial Coin Offering (ICO) fraud" committed by a company called PlexCorps that had raised as much as $15 million since August. The SEC said the company had promised a 13-fold profit in under a month. The charges stemming from that investigation were the first to be filed by the SEC's new cyber unit.

Munchee, the SEC said, agreed to a cease-and-desist order without admitting to or denying the agency's findings.

Meanwhile, the bumpy ride continued for Bitcoin stocks. Riot Blockchain ( RIOT ), a company that invests in blockchain technology, soared 45.5% to 23.08 in the stock market today after it said a payments company in its portfolio intended to merge with a company focused on mineral-resources exploration.

Bitcoin Investment Trust (GBTC), an investment vehicle that attempts to track Bitcoin's movements, burst 12% higher to 1,850.24 after briefly imploding to as low as 75 cents.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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