Fate of currencies as we know it

Dünya Executive - - REPORT - Murat BASBOGA

In the Middle Ages, alchemists dreamt of turning lead into gold with formulas. Today, technology innovators seem to have achieved the same goal with cryptocurr­encies, turning bits and bytes into billions of dollars. The skyrocketi­ng surge in bitcoin prices (and sharp drops as well) have generated attention, not just in the business dailies but even the tabloids. As the hype continues, even the BBC published a couple of features on its popular website. What’s it all about really? The thing is, almost nobody gave time to read the long story of asset bubbles throughout the centuries, like Tulipmania or South Sea Company, or even the Wall Street Crash of 1929. Whether there’s a bubble and whether any bursting of this bubble represents a global threat may depend on the careful and wise explanatio­n of cryptocurr­encies. For if a bursting of the bitcoin bubble is seen by investors as a sign that the period of excessive global asset price valuations, brought on by central bank monetary largesse, is over, then a bitcoin price collapse could prove a powerful signalling device for other assets. In other words, it might just create a butterfly effect as the merest flap of the butterfly’s wing creates sufficient wind to blow down even the largest of asset markets. Steven Barrow, chief currency strategist of Standard Bank, recently wrote that the butterfly effect could be hazardous at a time like this. “Ordinarily, we’d probably reject this butterfly effect, but asset prices are very elevated and possibly very fragile. Given this sort of backdrop, why couldn’t something as small as bitcoin be the equivalent of the butterfly wing that starts the storm? We, for one, would certainly be wary of discountin­g the threat as readily as central bankers seem to be doing.”

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