Is bitcoin's price tumble a warning bell for investors?

Seasoned investors will find it hard to resist a smug “I told you so” if the price of bitcoin continues the swoon which has seen it tumble from its December peak of nearly $US20,000, to around $US13,150 late on Tuesday.

That’s because since its creation in 2008, most investors have tended to see bitcoin as a financial market sideshow, of interest to criminals and drug dealers perhaps, but scarcely an asset that could be ranked alongside shares or bonds.

But bitcoin’s stunning price rise last year – the digital currency started 2017 at less than $US1000, which meant that it notched up a gain of around 2000 per cent for the year – forced them to question their contempt for the digital currency.

Even more annoyingly, bitcoin’s price surge created billionaires out of many early enthusiasts, such as Cameron and Tyler Winklevoss.

The 36-year old American identical twins started investing in bitcoin back in late 2012, when you could buy an individual coin for less than $US10, and in the space of a few months managed to hoover up 1 per cent of the total supply of bitcoin at the time, or some 120,000 tokens.

As they did, the price soared, making their bitcoin investment worth about $US11 billion by the time when they went public with it in April 2013, and an eye-watering $US1.3 billion by December 2017.

Economists spotted the bubble

Of course, most economists saw bitcoin’s price rise as nothing more than an unsustainable speculative bubble. They pointed out that every time the price of the digital currency gained an extra $1000, more headlines were generated and even more investors – often millennials using their credit or debit cards – piled in.

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Source: Is bitcoin’s price tumble a warning bell for investors? | afr.com