$756bn fund manager warns the Bitcoin bubble is going to pop and is going to zero


There’s bad news for the true believers who are sticking to bitcoin even as the value of the cryptocurrency has plunged by half its value from its peak.

One of the world’s largest active investment managers, Allianz Global Investors, is warning that it is a question of “when” and not “if” the bitcoin bubble will burst and that value of the bitcoin is zilch, reports Bloomberg.

Allianz Global has €481 billion ($756 billion) in assets under management and its head of global economics and strategy, Stefan Hofrichter, said that the intrinsic value of a bitcoin “must be zero” even if the underlying blockchain technology gets widely adopted.

“Bitcoin meets all of the essential criteria for any asset-class bubble, including overtrading, a lack of regulation and the potential for swindles,” wrote Hofrichter in a web post on Allianz’s website.

“Bitcoin has no intrinsic value. It is a claim on nobody – unlike sovereign bonds, equities or paper money – and doesn’t generate any income.”

Bitcoin diehards might point out that gold is pretty much in the same category. But don’t dump your shares in our leading gold miners Newcrest Mining Limited (ASX: NCM) or Evolution Mining Ltd (ASX: EVN) just yet.

Unlike bitcoin, gold has a near 5,000-year track record of being a store of value and a hedge against financial Armageddon! In contrast, bitcoin was invented in 2009.

Allianz’s dire warning isn’t a lone call. Plenty of other financial experts, including high-profile US economist Nouriel Roubini, think bitcoin is the biggest bubble in human history.

The question is whether increased regulation can secure the future of the cryptocurrency with the Winklevoss twins proposing the creation of an industry-funded self-regulating body to police the bitcoin market.

This could be just a move to head off the move by global governments to impose laws on cryptocurrencies, but I don’t think that will be enough to stop bitcoin from tumbling further from here.

Bitcoin has its notable supporters too. Renowned Australian investment banker Mike Tiller is throwing his support behind crypto-exchanges that trade these digital tokens as he told the Australian Financial Review that cryptocurrencies “are going to fundamentally change the way value is stored and transferred”.

However, I suspect he is more a fan of the blockchain than any specific digital currency and I think those who “invest” in bitcoins and its derivatives are gambling more than investing.

I’m not saying a gamble can’t pay off, but we shouldn’t confuse the two. Bitcoin is a gamble because there isn’t any fundamental backing for the “currency” – unlike say if you bought shares in companies like Rio Tinto Limited (ASX: RIO) or Commonwealth Bank of Australia (ASX: CBA).

In the latter cases, you at least know what you are buying and this even applies to investments in ASX-dogs like Myer Holdings Ltd (ASX: MYR) or Retail Food Group Limited (ASX: RFG).

It is far harder to explain what you are getting when you buy a bitcoin, and as investment guru Warren Buffett once said – you should only invest in what you know.

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