Crytocurrencyen illustrations. [photo/sftcdn.net]The cryptocurrency wave has hit the country and lots of people are already pouring their money into it. Publicity around bitcoin and a conference that is coming up this month have created curiosity among many Kenyans eager to make a quick gain.
There are already many stories about people who are reaping big from bitcoin, which are typically being used as bait. They invested when it was at its lowest, Sh10,000, so the story goes, and now its value has hit over Sh1 million.
The price peaked last month at $19,000 but the market collapsed last Wednesday with some exchanges quoting prices as low as below $10,000. The crash jolted investors who thought it was going to be a smooth sail to richness.
It proved, once again, that like many investments, bitcoin is vulnerable to external shocks. As bitcoin investors ponder the implications of the market collapse, it is increasingly clear that investing in virtual currency comes with a high-level of uncertainty.
Despite taking off at a fast speed, it is hard to understand the cryptocurrency market, how it works and the possibilities it might generate. Bitcoin has begun showing the characteristics of a bubble.
When there is a surge in the market for a commodity caused mainly by speculation which results in an explosion of activity, causing vastly overinflated prices, you know there is a bubble in the making. The prices are not sustainable and the bubble is usually followed by a crash in prices, leaving the gullible investors badly wounded.
The trick for investors is to be at the right place and exit at the right time before the burst. Kenyan investors had better study Hyman Minsky’s model of how bubbles operate to get a better understanding of the cryptocurrency market.
We are approaching this stage in Kenya on bitcoin. According to an article in the Economist, doubts begin to set in; some people decide to take their profits while they can. Bad news occurs.