‘Euphoria in the Market’: Investors Need to Be Cautious of Bitcoin’s Rebound in Value, Expert Says

© REUTERS / DADO RUVICA representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken November 19, 2020.
A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken November 19, 2020. - Sputnik International
Bitcoin has seen a rebound in its value, with arguably the most well-known crypto, now trading over $19,000 per coin. This most recent rapid gain for Bitcoin comes three years after the currency saw its price inflate from $5,000 to $20,000 in less than three months, before plunging nearly 80% across the first quarter of 2018.

Nafis Alam, Professor of Finance and Head at the School of Accounting & Finance, at Asia Pacific University of Technology & Innovation, invites you to look at Bitcoin’s performance in greater detail.

Sputnik: Why is Bitcoin seeing such a rebound in its value?

Nafis Alam: I believe it is having a multitude of effects there. One of the reasons is that whenever you have big names backing it up in the market, like any investment company, for example in currency, MicroStrategy and Square have put up a lot of money into Bitcoin. So, when people see that the big names are backing it up, there is euphoria in the market, which drives the price - that's one of the reasons. The second thing is that also money has to flow from one investment to another, and since the US dollar is depreciating and other commodities, for example, gold, have also slowed down compared with the early days of the lockdown, now people are trying to diversify and people are trying to put the money into Bitcoin. So, at the end of the day, it's still in euphoria and people are buying the statement of some of the investment firms, or some of the individuals, like the people who have invested recently, so that can be the reason.

Sputnik: Is this surge in value a temporary bubble or something more long term?

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Nafis Alam: I think we have talked about this and I am always being a critic of Bitcoin, as usual, this value is not going to be sustainable. We have to look into the intrinsic value of Bitcoin, definitely Bitcoin when coming closer to meeting up with 21 million of circulation, there will be more and more demand because people are looking forward to invest into it. So, there will be always a surge, but if you look into a long-term valuation of Bitcoin, it is not being backed up by anything. You also see that it's a type of virtual currency, you can invest in them, there are plenty of cryptos around. The only reason why Bitcoin [is chosen] is because everybody talks about Bitcoin, and this is a period of the year, where if you see [the] 2017 bubble as well, December was the time where Bitcoin could gain the most and also the month where Bitcoin loses a lot as well. But this time it will be different, I believe. This will keep on rising until the beginning of the next year, it might even go $20k plus, which is the threshold level [that] people perceive for Bitcoin. It might break that barrier as well by end of this year, but eventually, it will fall short. It is always a bubble and it should not be treated as a true value of Bitcoin. It has just been a euphoria and a bit of a demand at the moment.

Sputnik: Following a maturing in technology and more traditional institutions, such as JPMorgan, now accepting Bitcoin as a source of value… is Bitcoin something that people should start investing in?

Nafis Alam: Interesting question. I will take it as a caution because if you look into JPMorgan, or you look into PayPal being used as a platform, or if you look into Square's CEO, CFO investing into that, they might have their own inherent interest in Bitcoin as well. Because when you are diversifying your own portfolio and you are investing into an asset and you want to drive the price, you have to show some positivity to the market. So, there you have the big names, how long are they going to hold on to it? And these are the same people who have criticised Bitcoin a couple of years back. So, I will not say that these people have always been supportive. Sometimes they dismiss Bitcoin, sometimes they invest in Bitcoin, they drive the price up or down. So, there can be inherent interest and individual interest also to drive the price of it. But if you ask my opinion on this, it's not going to sustain for [the] long term and will not be a wise investment, unless you back it up with some intrinsic value of Bitcoin, which it doesn't have actually in practice.

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