Bitcoin will ‘implode’, says Saudi billionaire prince

World
Europe

Digital currency Bitcoin has been in news lately as it hit an all-time high of over 6,100 US dollars last Saturday. According to media reports, thousands of Venezuelans are using bitcoin “mining” to escape inflation in the South American country, while a Dutch family sold everything they owned to invest in the virtual currency that has surged 500 percent this year.

While some experts predict the virtual currency could soar to dizzier heights like 100,000 US dollars or even 500,000 US dollars, a billionaire Saudi prince on Monday expressed skepticism about cryptocurrencies warning that bitcoin will “implode” one day.

A bitcoin and dollar note are seen in this illustration picture taken on September 27, 2017. /Reuters Photo

'Enron in the making'

Prince Alwaleed bin Talal, who owns the investment firm Kingdom Holding that invests in major US companies such as Citigroup, Apple and Twitter, said a lack of regulation made cryptocurrencies unstable and risky.

“I just don’t believe in this Bitcoin thing. I think it’s going to implode one day. It’s Enron in the making,” he said in an interview on CNBC “Squawk Box” morning talk show on Monday. He was referring to the US energy giant Enron that filed for bankruptcy in 2001 after revelations of a massive accounting fraud.

Saudi Prince Alwaleed bin Talal speaks during an interview with Reuters at his offices in Kingdom Tower in Riyadh, on May 6, 2013. /Reuters Photo

“This thing does not make sense. It’s unregulated. It’s not under the control of the US Federal Reserve or any other central bank,” he added.

Alwaleed said he agreed with JPMorgan Chase CEO Jamie Dimon, who last month called Bitcoin a "fraud" that will eventually blow up.

Ritholtz Wealth Management CEO and CNBC contributor Josh Brown felt that Alwaleed’s ties to the Saudi royal family makes him a natural critic of Bitcoin. One of the key reasons behind the emergence of cryptocurrencies such as Bitcoin is their ability to be a global currency outside government control

Snubbing Alwaleed’s alarmist reaction, Brown said, "Saying this is going to blow up is not profound. It does that on a regular basis," adding, "You should expect regular blow ups because it's all speculative. Doesn't mean it's [not] going to outlive each and every blow up along the way."

Bitcoin trading is available in Saudi Arabia, according to exchange websites. However, the Saudi Arabian Monetary Authority warned in a July tweet about dealing with Bitcoin because the digital currency - which is not supervised by the government – might have negative consequences on individuals' investments, reported CNBC.

Chinese crackdown

A bitcoin is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France,on June 23, 2017. /Reuters Photo

Other nations, most notably China, have taken strong measures against cryptocurrencies. In September, banking regulators in Beijing and Shanghai ordered local cryptocurrency exchanges to shut down.

"There has been a period of uncertainty but that has not lasted. China represents more than 60 percent of trading and the question of their regulation, as everywhere, has made a bigger impact," AFP quoted Greg Revenu of Bryan, Garnier & Co. as saying after the Chinese decision.

Beijing's crackdown saw Bitcoin's price plunge some 40 percent before recovering, the latest move in its rollercoaster existence which began in 2009, when it was worth just a handful of cents. Even at the start of this year it was trading at "only" 966 US dollars.

Between 60 and 70 percent of new bitcoins are mined in China, where the local leader Bitmain has imposing infrastructure. Two Chinese trading platforms, Okcoin and BTC China, control about 22 percent of the global bitcoin market, according to an AFP report.

How does it all work?

A bitcoin sign is seen in a window in Toronto, Canada, on May 8, 2014. /Reuters Photo

The virtual currency is created through blockchain technology, which publicly records transaction details including the unique alphanumeric strings that identify buyers and sellers - technology which is gaining increasing currency among banks and companies.

"Mining" the coins is a very profitable but long, expensive, and energy-intensive process requiring powerful servers.

The Bitcoin supply is capped at 21 million units, some 17 million of which have already been mined.

Bitcoin is not generally recognized as a currency - lacking a home country, central bank or treasury - although its real world use is constantly increasing.

The development of digital currencies has also spawned the growth of token sales, or initial coin offerings, which have taken off this year. The coin sales have raised 3.04 billion US dollars, according to financial research firm Autonomous Next.

Speculative bubble

Bitcoin’s volatility has led many financial observers to suggest the current bull may be another speculative bubble which could well lead to a corrective selloff.

Backers, however, see Bitcoin’s current surge as evidence that it has shaken off an August split into Bitcoin and Bitcoin cash, and the Chinese crackdown on digital coins.

Jonathan Gerardin, IT manager at Wavestone, noted in an AFP report that the currency split, coupled with China's crackdown, had dampened enthusiasm but "Bitcoin has been able to overcome that and continue to progress, it has shown its resilience".

Some experts, in fact, predict Bitcoin's value to reach a mindboggling 100,000 US dollars or even 500,000 US dollars.

However, besides Prince Alwaleed, even experts from Geneva-based Mirabaud Securities said the digital currency may now in a "bubble zone" which could burst any time.

(With input from agencies)