There are two factors that would suggest that we are facing a new financial bubble: on the one hand, the rapid rise in bitocin prices. (The cryptocurrency has, in fact, exceeded for the first time the 10 thousand dollars, then even 11 thousand a few hours later and then return in the evening, to $ 9,500, confirming his volatile nature. Just one year ago it was just over 700 dollars, at the beginning of the year, and only one month and a half ago it broke through the threshold of 5.000. Today it is at levels equal to more than double).
On the other hand, we are assisting to a return on investment which is completely disproportionate to the real income generated by the asset. If we think that for the shares thecountervalue is the dividend, for the currencies the interest rate, for the bonds the coupon, nothing can be said about the bitcoin having no intrinsic value, but generating only the hope of further appreciation of the quotation.
The speculative bubble is born and grows fast, and then burst with a consequent price collapse. A bubble usually arises from an excess of demand for a good, business, service, stock or other cause caused by the euphoria of people and / or companies that leads to a bid to buy with the hope that the value increases and then resell assets at a higher price later.
The rush to buy stimulates a further rise in the price and this leads to new further purchases, often by people not “experts” of that sector but who see an opportunity and are launched in the market to speculate, or trying to buy at a price lower than what that good could have in the following
Among the most famous and known bubbles we have that of the Dutch tulips of 1637, the crisis of 1929, the bubble of the Dot-Com of 2000 during which the value of some technology companies listed on NASDAQ skyrocketed, various real estate bubbles including much note is that the Irish, the Japanese speculative and finally the economic crisis of 2008.
The ninth anniversary of the birth of Bitcoin has just passed. It was in fact October 31, 2008 when the famous paper “Bitcoin: A Peer-to-Peer Electronic Cash System” was published by an author still unknown under the pseudonym Satoshi Nakamoto, describing the guidelines for the creation of the first decentralized virtual currency made safe from complex cryptographic mechanisms.
It is not the first time that a virtual currency is proposed, there have been examples before 2008, but all of short duration because they are characterized by forms of centralization that have made them vulnerable to censorship.
Bitcoin is based on a different approach, combining innovative elements that make it much safer than previous systems. One of the pillars of Bitcoin is the blockchain, which is a database that contains all the transactions carried out by the assignment of the first coin.
New coins are automatically generated following a predefined algorithm that characterizes the evolution of the monetary base over time. The assignment of new coins to users is carried out through a complex system that allows to recognize the users who most contribute to the safety of the bitcoin network by creating an incentive mechanism that makes the network more secure over time.
The monetary base of the bitcoin grows in a deflationary fashion and will stop asymptotically at 21 million units approximately in 2140. These parameters set by the originator of the protocol at the origin are set in the software that all the participants in the network maintain over time.
The value of bitcoin is determined by pure supply and demand mechanisms. Since there is no central authority that can modify the issue, the offer is predefined. The question depends instead on the number of users who want to actively access the network (being able to interact with the blockchain).
The first users were probably driven by the elegance of the underlying technology and by some features that make the bitcoin unique: transactions on the blockchain are immutable and irreversible and it is not possible for a user to subvert the order of operations. In order to subvert any operation, it would be necessary to have a computing power comparable to the sum of the computing power of all the participants in the network. At present the bitcoin network has a computing power higher than the sum of the first 500 supercomputers operating at global level and, therefore, it would be very complex to launch an attack on the network also from a Sovereign State.
In addition to the irreversibility features, the Bitcoin network has the advantage of having a high level of accessibility. It is sufficient to have an internet connection to be able to carry out a bitcoin operation from any geography and at any time. Therefore, with the appropriate measures bitcoins become difficult if not completely free from censorship.
Large financial institutions and information technology giants have begun to evaluate the underlying technology in a positive way by evaluating the opportunity to form more or less specific development consortia (R3 and DTC are 2 examples of consortia in which Italian banks also participate). The objective is to create interoperable protocols that allow to obtain the advantages of blockchain in a controlled and easily regulated environment.
Unlike the original blockchains of bitcoin and ethereum which are publicly accessible and therefore known as “public”, the blockchains of the consortia are typically “private” and can only be accessed by the participating institutions.
2016 saw the development of such consortia, the acceptance of blockchain technology and the gradual opening of the financial world to the same with the exploration of use cases in practically all the possible industrial sectors
Only in 2017, however, have been created the conditions to bring disruptive attention and interest to blockchain and cryptocurrency at the level of the common user.
The triggering cause is most likely to be found in the ICO phenomenon, currently the most successful case of using Ethereum. An ICO (Initial coin offer) is a fund-raising mechanism similar to a decentralized crowd-funding, in which a company collects cryptocurrency (typically in the form of an ethereum) by assigning a certain amount of token in return.
Tokens can have multiple benefits, from the ability to take advantage of specific services up to the right to dividend sharing. Technically the mechanism is instant and safe. In addition, tokens become immediately tradable on specialized platforms typical of cryptocurrencies making the investment liquidable within a very short time.
Therefore, while a traditional investment in a startup is today reserved for a restricted base of investors (typically venture capitalists) who can hardly liquidate it up to Ipo (typically after a period of 5 to 10 years), in an ICO the investment has a a technically unlimited potential basis with the possibility of exchange and therefore almost immediate
In the absence of regulation this mechanism began to take hold at the beginning of the year and exploded in the second and third quarter channeling about 3 billion capital in ICO raising not a few perplexities on the part of the national regulators (starting from the American Sec).
The returns for some of these Ico have been very high, in the order of multiples in a few weeks, recreating a bubble effect very similar to that of the IPOs of the first Internet era of 1998-1999.
In 2017 alone, about 70 funds were created that invest in cryptocurrencies exclusively or partially. It is estimated that by the end of the year a total of 150 will be created.
Many retail customers (over 50,000 new users a day on the main cryptocurrency purchase platforms) are entering this new and extremely diverse universe of virtual and token coins. The complexity of the phenomenon is very high and the possibility of understanding for a retail investor in this phase is extremely limited with high risks of complete loss of capital.
Gradually there will be greater regulation of the phenomenon in order to protect the small saver. Many representatives of the traditional institutional world believe that the phenomenon is purely speculative and devoid of fundamentals.
In other cases, while underlining many features of the current phenomenon as typical of those of a speculative bubble, the potentially disruptive nature of this new technological and economic mechanism is also recognized, such as not only to create a possible new asset class destined to remain over time , but to change the assets of the current financial ecosystem.
Avv. Valentina Giarrusso