11 January 2018

South Africa: Cryptocurrencies - Digital Gold, a Bubble or an Investment Case?

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Bitcoin is now a ubiquitous conversation piece at dinner parties (even the fun types the authors are not invited to), having evolved from a fringe topic reserved for tech enthusiasts. It is a tech-heavy topic, often subject to hysteria or dismissal. What's the less biased view of its investment potential? By DANIEL POLAKOW, NICO KATZKE and ONNO HUYSER.

The most contentious question must come first: are cryptocurrencies experiencing a bubble? Maybe, but not necessarily so. Defining Bitcoin as a bubble is problematic, despite it being very much in vogue to do so (especially by those not holding or unable to hold Bitcoin in their portfolios).

The definition of a bubble requires some measurable, or at the very least conceptualisable, base intrinsic value from which the price shows abnormal deviation, even if this is retrospective. In the case of Bitcoin, the problem is ineffable, since many are unsure if Bitcoin has such an intrinsic value at all, if it is even deserving of such value, and if so, what this value might be. And yet others are convinced that it has all the properties of digital gold, and can function as a store of value superior to the shiny brittle metal...

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