Why bitcoin’s volatility is the least of the problems facing world markets
- The market capitalisation of crypto assets as a share of global GDP is significantly less than that of dotcom stocks in the late 1990s
- The biggest risk for markets is an out-of-the-blue incident that exposes deeper problems in the financial system, triggering a major sell-off
When an increasingly influential asset class worth US$2.5 trillion loses nearly half its value in the space of a fortnight, it is not surprising that there are fears about collateral damage.
Yet, the ferocity of the rally in bitcoin – even after the rout, the digital asset is up a staggering 270 per cent since early October last year – and signs that the investor base is becoming more institutionalised have catapulted the token to the forefront of market commentary and analysis.
In a report published on May 21, JPMorgan noted that bitcoin is more widely discussed than inflation in the financial press.
The fierce volatility in cryptocurrencies appeared to impinge on mainstream assets last week, fanning fears that bitcoin has become a source of contagion. At a time when many assets, in particular technology stocks, are dangerously overvalued, and given the institutional money flowing into bitcoin, a major crypto-induced sell-off is a possibility.
