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Is Bitcoin a bubble? If you’re investing in blockchain does it really matter?

On one hand the vast majority of UK fund managers are sceptical, on the other a major stock exchange is adopting blockchain - if you're not paying attention you could easily get confused.
Bitcoins
Bitcoin rose to just under £12,000 (over US$16,000)

Bitcoin may well be a bubble. Everyday, bitcoin and/or blockchain related spam clogs up my inbox a little bit more than the day before.

The cryptocurrency market is nothing if not noisy. Such is the conjecture, if you’ve done nothing more than parse the daily headline you’re likely confused.

A single Bitcoin, the most widely traded crypto-currency, today smashed through the US$16,000 (£12,000) mark just a day after tearing through US$13,000 and US$14,000 milestones.

It is now up over 1,500% since the beginning of 2017. This time last year the price was below US$800.

Like any complex and nuanced contemporary topic, most observers have quickly snapped into binary mode - the cryptocurrency business is either A) a bubble and probably a scam or B) it’s a financial revolution that will save capitalism. Review the daily press clippings, you’ll find plenty of headlines for both teams in the debate.

Thursday’s representation from Team A, for example, says 82% of institutional investors in the United Kingdom see Bitcoin as “an unsustainable bubble”.

A Natixis conducted survey of managers of pension funds, insurance companies, and endowments ranked the Bitcoin ‘bubble’ ahead of all their other concerns. It is, apparently, worrying more investors than either traditional market volatility or the threat of interest rate rises.

At the same  time, however, one of the world’s major stock exchanges has decided replace its existing trade settlement system for a new blockchain based one.

The ASX is ditching its CHESS (clearing house electronic subregister system) in favour of a ‘next generation’ platform that’s been developed by ledger technology firm Digital Asset.

“After so much hype surrounding distributed ledger technology, today’s announcement delivers the first meaningful proof that the technology can live up to its potential,” said Blythe Masters, Digital Asset chief executive.

“Together, DA and our client ASX have shown that the technology not only works, but can meet the requirements of mission critical financial infrastructure.”

So, how do these stories reconcile?

Put simply, the Bitcoin cryptocurrency could quite easily be in an overblown bubble. But, the technology upon which the rampantly traded cryptocurrency is built really could be a lasting revolution - facilitating cryptocurrency exchanges is only one of the uses for blockchain technology.

As an interesting albeit speculative side-note to the ASX news is that Blythe Masters was among the names said to be in the hat for the top job at the London Stock Exchange, which puts an intriguing subtext to the story, particularly the folks at the London Clearing House.

Seemingly, we’re all going to be hearing much more about Bitcoin and blockchain for some time to come.

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