One of Australia’s pre-eminent fund managers has warned that “desperate participation” in the bitcoin bubble could lead to a “bust” across all asset classes, especially if debt was being used to buy it.
Billionaire founder of Platinum Asset Management Kerr Neilson said the falling value of traditional money had encouraged “new-age millennials” and “disparaged voters” to speculate in cryptocurrencies, but its utility as a currency was no longer being considered.
“Of course this desperate participation forewarns of the likely bust, but for now, punters as a group are reckoning on their greater agility than the crowd,” he wrote in a quarterly report.
Today bitcoin tumbled $US1004 to $US12,913 following reports South Korean authorities were still considering shutting down some cryptocurrency exchanges, down 33.8 per cent from its $US19,511 record high reached in December.
Mr Neilson said bitcoin’s “parabolic rise is close to climax”.
“If debt is used to fuel the flames, the consequence of a bust could be felt across all asset classes as the liquidity squeeze forces the sale of other assets to meet the collapsing crypto phenomenon,” he said.
But he noted that Google searches for “bitcoin” had dropped below those for gold, indicating perhaps the worst of the speculative fever was over.
Last week Mr Neilson’s colleague, Sava Mihic, wrote the reality that bitcoin could not be used as a medium of exchange had now been recognised, the narrative had shifted to it being a store of value, with gold being used as an analogue.
“Proponents argue that the limited total supply of bitcoin creates scarcity value, and that the mining of bitcoin, similar to the mining of gold, takes work,” he said.
“In the case of gold, the price is often underpinned to some extent by the cost of mining it, and mining costs generally increase over time as the geology becomes more difficult.”
But in contrast, “no such analogue can be drawn in bitcoin”, because the difficulty of mining was proportional to the amount of processing power being expended.
“High bitcoin prices incentivise more processing power and therefore higher costs, but the reverse is also true, which implies that there is little pricing support when bitcoin prices fall,” he said.