The Bitcoin–Blockchain Mania

Significantly, with the launch of futures trading in the cryptocurrency bitcoin on the Chicago Board OptionsExchange on 10 December 2017 and the following week on the much larger Chicago Mercantile Exchange, large institutional investors, hitherto restricted by their rules from trading onunregulated exchanges, now have another promising financial instrument in their portfolios. With bitcoin prices soaring, the large institutional investors could not have held out any longer from the beckoning opportunity of raking in huge capital gains. Significant price volatility notwithstanding, at one point bitcoin touched the $20,000 mark in the third week of December from $1,000 in January 2017, generating apprehensions as to when the speculative bubble might burst. The hedge funds specialising in bitcoin and other cryptocurrencies seem to be having a field day, even as central bankers and financial authorities keep denouncing the bitcoin speculative mania as extremely risky.

Yet, the fact remains that it is the very monetary policy of “quantitative easing” followed by central banks, such as the Federal Reserve, the European Central Bank and the Bank of Japan, since the great financial crisis that has provided the unprecedented liquidity. This has been routed into speculative investment in the asset markets (stock, bond, other financial assets, real estate, etc), leading once again to a massive inflation in asset values. Such asset price inflation, accompanied by speculation in those very assets, has contributed to the growth of borrowing to finance the asset buying. This in turn has further fanned the inflation in asset values and spurred on the speculative mania. After all, the creditworthiness of the speculators is determined by the market value of the assets that they hold, which act as collateral for the lending banks.