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It’s ‘bitcrazy’: People are mortgaging their homes to buy bitcoin

It's 'bitcrazy': People are mortgaging their homes to buy bitcoin

Briefing highlights

  • What analysts say about bitcoin
  • Markets at a glance
  • Bombardier strikes Aventra deal
  • West Face files against Home Capital
  • Canadian dollar just below 78 cents
  • U.K. inflation highest in almost 6 years

Some compare it to the dot-com phenomenon, others to the Dutch tulip bubble.

Personally, reading about bitcoin makes me think of Cabbage Patch Dolls, and the absolute frenzy at American malls in the early 1980s, when you'd happily trample your neighbour for a chance to get one.

Whatever comes to mind, you can't ignore it. Bitcoin has caught the market's attention as it runs absolutely wild. And bitcoin futures have now debuted in Chicago.

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But it's not clear at this point what to make of bitcoin and other cryptocurrencies, so it's worth a look at what analysts are saying.

"Given this uncertainty, it makes sense that bitcoin is often compared to the famous Dutch tulip bubble," said Andrew Kenningham, the chief global economist at Capital Economics in London.

"Like bitcoin, tulips became popular 'because of their strangeness and rarity' and because they were new, having arrived from the Ottoman Empire in the late 16th Century. Their prices rose astronomically between 1634 and 1637 and then collapsed. But the crash apparently had little impact on the Dutch economy."

As The Globe and Mail's Matt Lundy reports, there are obviously personal financial risks if the bit-bubble were to bite it, but observers such as Mr. Kenningham don't see much of a broader threat. As in, the world won't collapse if bitcoin does.

It's a hard thing to get your head around, as this graphic illustrates:

As for what it all means, and what you should know, here's a sample of what analysts are saying:

"We've seen mortgages being taken out to buy bitcoin … This is not something a guy who's making $100,000 a year, who's got a mortgage and two kids in college, ought to be invested in." Joseph Borg, president of the North American Securities Administrators Association, to CNBC

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"We doubt that any cryptocurrency will become a serious rival to the dollar or other major fiat currencies, many of which have centuries of history behind them and the backing of governments and central banks. Also, technological problems, fraud or tighter regulation may undermine bitcoin. And even if cryptocurrencies in general have a future, one of bitcoin's numerous competitors, or a central bank digital currency, could kill it off just as plenty of early rivals to Facebook and Google were sunk without trace." Mr. Kenningham

"The latest ascent of bitcoin (or ethereum, litecoin, etc.) makes the 1990s IPO craze … look like afternoon tea compared to the raging frat party playing out in the cryptocurrency world. We'll just say that when an asset price finally goes full mainstream media, that's about when you should start acquainting yourself with the location of the exit door." Robert Kavcic, senior economist, BMO Nesbitt Burns, in a report titled "Bitcrazy"

"If the bubble in bitcoin were to burst, we doubt that it would have large implications for financial markets. After all, movements in the price of the cryptocurrency seem unrelated to movements in other asset prices." Kerrie Walsh, assistant economist, Capital Economics

"Even bitcoin, which was partly created as an alternative to low-yield/QE currencies like the dollar, has posted a 45-fold price increase during Fed rate normalization. For perspective, the Nikkei 'only' quadrupled in value in the late 1980s before [Bank of Japan] tightening punctured that bubble, and the Nasdaq only rose 10-fold in the late 1990s before Fed hikes did the same. If bitcoin had hopes of ever becoming legal tender - meaning that all economic agents are obliged to accept it as payment - then parabolic price momentum might be understandable. If not, this move seems like either a lottery ticket or the unfathomable price some will pay for the experience of interacting outside The Matrix." John Normand, head of foreign exchange, commodities and international rates research, JPMorgan Chase

"We expect recent pressure on gold from equities, the dollar, rate hikes and possibly even bitcoin to continue to support our current [fourth-quarter] forecast." Helima Croft, head head of commodity strategy, Michael Tran and Christopher Louney, commodity strategists, Royal Bank of Canada

"Bitcoin started trading in the futures market [Monday] morning, with the new products offered on CBOE ahead of next week's CME launch. With circuit breaker mechanisms halting trade on two occasions, it is clear that this market is going to be one of the most volatile of any offered by CBOE. However, with the futures contract trading at a circa $2,000 premium over the traditional market, it is clear that there is a significant degree of interest in this product which allows investors with the opportunity to enter into the crypto space under a more traditional trading environment." Joshua Mahony, market analyst, IG

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"It has no intrinsic value. I don't know what it is. But it has no intrinsic value in our definition of intrinsic value. If someone else wants to speculate on it or invest in it, it's for them. It's not for us." Bruce Flatt, CEO, Brookfield Asset Management, to Bloomberg

"We are seeing sort of bubble-like valuations. BlackRock's view is that this isn't a financial asset like we would trade in terms of equities and fixed-income instruments." Belinda Boa, money manager, BlackRock

"We will be building confidence in the coming months, and stay tuned, there are more to come." Ed Tilly, CEO, CBOE, to Reuters

"Unlike the bubbles in the tech sector in the late 1990s and in U.S. residential property a few years later, a bursting of the bitcoin bubble should not have systemic, macroeconomic implications. The total value of bitcoin is (still) too small, and it has few links with the wider economy." Mr. Kenningham

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