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Is the Bitcoin price bubble about to burst?

Credit: Zach Copley

The strongest currency of 2015, 2016 and most likely 2017 is not from a country you’ve ever visited, or will ever visit. In fact no one even knows what the currency looks like as it doesn’t exist, except in a digital sense.

Believers call Bitcoin the flagship currency of the new digital global economy, an incorruptible antidote to old-world currencies inflated by the ever-increasing supply of money tipped into markets by central bankers and their government sponsors.

Critics call Bitcoin little more than an unregulated scam that helps the morally dubious transfer funds around the world and disguise their wealth.

Still with the crypto-currency now up 431% over the past year and 46,335% over the past five years to US$2,503 per coin there’s no doubt Bitcoin is in big demand right now.

And of course the kicker with Bitcoin (compared to physical currencies) is that its supply is finite which means in theory it can never be debased.

Looking at below’s chart of the crypto-currency’s performance readers will probably notice the currency has nearly doubled since late April 2017.

Chart: 5-year Bitcoin price in U.S. dollars

Why has it nearly doubled over the last month?

The “WannaCry ransomeware” cyber attack or digital robbery launched on May 12 demanded payment in Bitcoins in an example of what is fuelling the demand for the currency.

Fuelling the rise of Bitcoin elsewhere is the Fear of Missing Out (FOMO) trade.

Ever since the South Sea Trading Company bubble of 1720 the most common cause of irrational asset price rises has been the FOMO.

It’s impossible to know which way Bitcoin will head next, but if the rush for the exits does come it’s likely to be far quicker than the rise.

Bitcoin also does not pay an income, which means (like gold) it’s almost impossible to value as anything other than a store of wealth.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned. The Motley Fool Australia has no position in any stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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