Could a Bitcoin Crash Harm Global Markets in 2018?
The price of bitcoin keeps rising. At the time of writing bitcoin has surged to just under $19,000 and then back down again to around $17,000. This kind of volatility has sparked investment across the globe, and with it a lot of hype speculating where the potential cap of the cryptocurrency will be.
Due to this, certain economists are a bit worried.
Torsten Slok, Deutsche Bank’s Chief International Economist, is one of these figures. He recently sent out a list to his clients of 30 different market risks for 2018 which could impact global market growth in an adverse fashion. The list has been made public on a few different sites, such as Bloomberg, and ranks a bitcoin crash very high up the list at number 13.
There are a couple things to note about this list if it is of major concern to any speculators out there.
First off, yes, there is a large amount of hype going into bitcoin’s current inflation. Is it over-inflated yet? That is quite hard to say but as the price goes up, and people fuel the hype, there will be a risk for that type of bubble to pop.
However, the current total market value of all cryptocurrencies sits at right around $400 billion. The U.S. housing market, whose crash brought down markets back in 2008, is estimated at nearly $30 trillion. That is multiple orders of magnitude larger than bitcoin’s value.
Beyond this, it is not like bitcoin is located all within a single country’s economy; bitcoin users are spread all across the globe. This seriously lessens the blow of the currency crashing, but even without that fact the value of the currency in general is but a fraction of the much larger and precarious markets.
So, even in the case of a full on bitcoin crash it would be quite unlikely to bring down markets on its own.
For an interesting comparison, Bitcoin ranks higher on this list than housing bubbles bursting in multiple countries including China and Canada, impacts of the UK’s Brexit, a nuclear-armed North Korea, or the potential indictment of a sitting US President due to the Mueller investigations.
The bitcoin bubble is indeed interesting, but let’s not let the hype expand itself beyond the price of the currency. Bitcoin has the potential to be economically important, but currently it just doesn’t have the weight to effect global markets. Maybe in a few years as cryptocurrencies continue to grow, then Mr. Slok can have something to worry about.
This seems to be another case of an economist outweighing the risks involved with new technologies that they don’t fully understand. The bubble may pop, there’s no arguing that fact, but the global damage will be negligible.