The Internet currency Bitcoin’s price has increased tenfold in 2017.
This week, it crossed KSh1.4 million on Thursday, soaring KSh 206,055 in less than 24 hours according to the BBC.
The cryptocurrency began the year below KSh 103,027.5 but continues its sharp rise despite warnings of a dangerous bubble.
Dr. Patrick Njoroge, Governor Central Bank of Kenya (CBK) said it might be a ‘ponzi scheme’.
“We warned everybody that this was a risky venture and the consumer is not protected,” Dr Njoroge said in November at a media briefing. “It could very well be a Ponzi scheme of a kind, I think you have seen how the prices have gone up and down in various places.”
However, “These cryptocurrencies are using a technology known as blockchain. There may be a future for blockchain. We are working with our peers around the world on things that could lead to using this technology in particular ways,” Njoroge said.
Stephen Roach, Yale University senior fellow and the former Asia chairman and chief economist at investment bank Morgan Stanley says Bitcoin is in a “dangerous speculative bubble.” “This is a toxic concept for investors.”
In 2015, CBK warned that “Transactions in virtual currencies such as bitcoin are largely untraceable and anonymous making them susceptible to abuse by criminals in money laundering and financing of terrorism.”
Aly-Khan Satchu, a financial analyst wrote, “My investment thesis at the start of the year was that Bitcoin was going to get mainstream in 2017. It has mainstreamed beyond my wildest dreams, therefore, I am now sidelined.”
According to Bloomberg, the initial price of bitcoin, set in 2010, was less than 1 cent. Now it’s crossed $16,000. “Once seen as the province of nerds, libertarians and drug dealers, bitcoin today is drawing millions of dollars from hedge funds.”
“New investors and expectations of many more to follow has increased the price of a bitcoin about 11-fold so far this year.
Tariq Al Wahedi, CryptoBnB CEO, a cryptocurrency-based platform for renting, says “The fundamentals are still very strong for BTC, but at the speed it’s growing I feel the increase in price of BTC is driven by hype and speculation more than fundamentals.”
The Internet currency Bitcoin is surrounded by uncertainty. Is it a speculative bubble? “Bitcoin is so innovative, in fact, that beyond breaking the conventions of currency, it has even transcended partisan ideologies,” wrote Garrick Hileman, an economic historian at the London School of Economics in 2014.
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University writes, “It is hard to see what would stop central banks from creating their own digital currencies and using regulation to tilt the playing field until they win. The long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates.”
Besides being unregulated, Dirk Baur, Professor of Finance, University of Western Australia and Niels Van Quaquebeke Professor of Leadership and Organizational Behavior, Kühne Logistics University jointly state that “The blockchain does not create or eliminate trust. It merely converts trust from one form to another. While we previously had to trust financial institutions to verify transactions, with the blockchain we have to trust the technology itself.”
They argue that “Because all of the verification is done by the system itself, the idea is that users do not need a trusted central authority. Instead, trust is transferred from one central authority (such as a bank) to many decentralised, anonymous participants (the miners). But here lies the problem – users must trust the technology and the governance of the system.”