Economic guru Ron Insana warns that if you’re invested in the lofty world of bitcoin, you’d be wise to get out now before it all crashes to the ground.
“Bitcoin is in a bubble, make no mistake,” he wrote for CNBC. “The episode, for some, will end badly while others reap the rewards of getting in on the action early and, more importantly, getting out before the bust,” he wrote.
“The price of a single bitcoin has gone up parabolically and at a faster pace than any other speculative vehicle in market history, as investor enthusiasm for the new medium has reached a fever pitch,” the CNBC and MSNBC contributor wrote.
Bitcoin on Thursday fell to a five-week low of $3,426.92, having hit a record high of nearly $5,000 on Sept. 2.
Bitcoin, Insana said, fails as a currency in several ways. Money is defined by three characteristics:
- A storehouse of value.
- A unit of account.
- A medium of exchange.
“It's hard to determine if bitcoin is a storehouse of value. Daily volatility tops 5 percent to 10 percent while its "value" has skyrocketed. If it crashes, it will fail to meet criteria No. 1,” the author of four books on Wall Street explained.
“It is a unit of account, but for whom?” he asked. “It may be a medium of exchange, but for now that is only for a very few users,” he said.
“Complicating all that is the use of cryptocurrencies in the "dark web" for a wide variety of illicit activities, from money laundering to drug dealing to prostitution, among others.”
Insana isn't alone in his criticism of bitcoin.
JPMorgan Chase & Co. Chief Executive Officer Jamie said although he thinks bitcoin is a "fraud," the cryptocurrency could still soar to $100,000 before it collapses.
The cryptocurrency “won’t end well,” he told an investor conference in New York on Tuesday, predicting it will eventually blow up. “It’s a fraud.”
Bitcoin has soared in recent months, spurred by greater acceptance of the blockchain technology that underpins the exchange method and optimism that faster transaction times will encourage broader use of the cryptocurrency. Prices have climbed more than four-fold this year -- a run that has drawn debate over whether that’s a bubble, Bloomberg reported.
"If you’re in Venezuela or Ecuador, or North Korea, you’re better off probably using Bitcoin than using their currency," he said. "That can’t possibly be true in the United States unless you’re speculating, and that isn’t a reason to say something has value," he said.
"I’m not saying go short... Bitcoin can go $100,000 a bitcoin before it goes down, so this is not advice on what to do," he said, Fortune reported.
Last week, bitcoin slumped after reports that China plans to ban trading of virtual currencies on domestic exchanges, dealing another blow to the $150 billion cryptocurrency market.
Meanwhile, Chinese bitcoin exchange BTCChina said on Thursday that it would stop all trading from Sept. 30, setting off a further slide in the value of the cryptocurrency that left it over 30 percent away from the record highs it hit earlier in the month.
China has boomed as a cryptocurrency trading location in recent years, as investors and speculators flocked to domestic exchanges that formerly allowed users to conduct trades for free, boosting demand, Reuters explained.
But that has prompted regulators in the country to crack down on the cryptocurrency sector, in a bid to stamp out potential financial risks as consumers pile into a highly risky and speculative market that has seen unprecedented growth this year.
Just hours after BTCChina announced its closure, Chinese news outlet Yicai reported that the country plans to shut down all bitcoin exchanges by the end of September, citing financial sources in Shanghai.
BTCChina said its decision was based on a Sept. 4 directive from Chinese authorities that expressed concern over investment risks involved in cryptocurrencies and ordered a ban on so-called initial coin offerings, or ICOs - the practice of creating and selling digital currencies or tokens to investors to finance start-up projects.
That ban, as well as warnings by regulators in other countries, has driven fears of a wider crackdown and prompted a sell-off that has helped wipe almost $60 billion off the total value of cryptocurrencies since they hit record highs at the start of the month, according to industry website Coinmarketcap.
The price of bitcoin tumbled particularly sharply on BTCChina after the news. By 1233 GMT, it was down 18 percent on the exchange, at 20,510 yuan.
On U.S. exchange Bitstamp, it slid as much as 10 percent to a five-week low of $3,426.92, having hit a record high of nearly $5,000 on Sept. 2.
Panic also spread to other cryptocurrencies, with bitcoin’s main rival ether - sometimes called ethereum - also down around 10 percent, according to Coinmarketcap.
Reuters and other media had reported this week, citing sources, that China planned to further ban exchanges that allowed virtual currency trading but the regulator has yet to make an announcement.
(Newsmax wires services contributed to this report).
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