With the price of bitcoins surging to all-time highs this week, plenty of investors are contemplating getting in on the action before it’s too late so they can make some profit off the popular cryptocurrency. However, one expert is telling them to be careful because the bubble will likely burst soon.
Stephen Roach, a well-respected economist, who according to Yale is one of Wall Street’s most influential economists, sent a warning to investors this week saying bitcoins were in a dangerous speculative bubble.
Roach also called the cryptocurrency a toxic concept for investors. The economist said he has never seen a securities chart that had a vertical pattern to it and bitcoins have the most vertical pattern he has ever seen in his career.
The cryptocurrency has surged more than 1,000 percent this year, a rise that has been accelerated by increasing interest from institutional and retail investors who see the cryptocurrency as a possible means of exchange and a way to store value.
The rise of the cryptocurrency has also been aided by the currency being legitimized by major exchanges like the CBOE and CME, who say they plan to introduce future contracts to their exchanges, which is expected to further the price.
Roach believes that the exchanges that are legitimizing bitcoins are making it somewhat dangerous for investors because the concept has a lack of underlying economic value.
Roach’s theory is aided by the fact that a lot of investors have admitted that they don’t understand the technicalities of the currency and don’t have an idea of how the blockchain technology behind bitcoins work.
The investors said they are simply investing in the cryptocurrency hoping to make a profit because they expect the price to continue rising.
According to Roach, bitcoins bubble might still be going strong right now, but it will eventually burst like all other bubbles. He added that the people who get in at the end of the bubble will be the ones that get hurt the most because they will be buying the currency at an all-time high and won’t be able to recover their investment.
During the week, the price for one bitcoin rose to $16,600 per btc, which is an all-time high. Experts believe the price will drop soon, but they are forecasting that the cryptocurrency will likely break $30,000 per btc before it eventually crashes.
Despite the warnings, investors believe even if the price crashes, it will eventually go back up like it did in 2011 after the MT. Gox breach that caused the price to crash from over $2,000 to less than $100.