The digital cash known as bitcoin has soared in value this year, and earlier this week investors bet positively on a new financial product based on it. Trading on the first-ever futures contracts for the virtual currency was so heavy on December 10, its first day, that the website of the Chicago Board Options Exchange experienced delays and outages, and wild swings in price forced the exchange to halt trading twice to stem volatility. The futures contracts allow investors to speculate on whether bitcoin will rise or fall.
Also this month, the price of a bitcoin hit its highest point to date, more than $17,000, on the bitcoin exchange Coindesk. The value of a bitcoin at the start of the year was about $1,000.
What does this frenzy of interest mean for the decentralized virtual currency, which is not backed by the central bank of any country? Tufts Now asked Bhaskar Chakravorti, the senior associate dean for international business and finance at the Fletcher School and executive director of Fletcher’s Institute for Business in the Global Context, to help explain the future of bitcoin and other cryptocurrencies.
Tufts Now: The value of bitcoin has always fluctuated, but this year it has skyrocketed, up 17 times its value from the beginning of the year. What do you make of that kind of volatility?
Bhaskar Chakravorti: The volatility is understandable, because we’re in the very early phases of a phenomenon that is largely based on people anticipating that other people will continue to see value in this thing. When you’re in these early phases, when people don’t quite understand what this object is, it lends itself to volatility. There’s a crowd that rushes in, and then there might be a bit of a dip, and then there’s another rush. It’s completely natural, given the phase in the life cycle.
Read the full Q&A