Many moons ago, indeed decades now, there was a hedge fund that managed to leverage itself up so much that it caused a massive loss in Wall Street and even led to the resignation of the Chairman of UBS.
So, is this time different?
Bitcoin is a classic tulip-bubble mania. There is a limited supply, there is some kind of magic involved, retail investors are sucked in and there is plenty of liquidity in the market to push the currency on.
Of course, historically most of the bitcoins have been used by mafia and corrupt governments as a means of washing illegal gains. But these players have had ample opportunity this year to clear out, at a massive profit too!
So now the base is increasingly retail investors and some more risky financial broker-dealers who smell trading profits.
With the CME now allowing shorting of Bitcoin for the first time, there may well be hedge funds who come into the market now to take a bet on the collapse.
The danger though is that bitcoin is now worth some $270 billion and this changes rapidly daily. Ina major crash there is a lot of money to be destroyed. LTCM only burned through around $4 billion in 1998!
Over the course of this week the meteoric rise of bitcoin does seem to have stopped with the CME entry to the market and it is now stable at around $17000 per bitcoin.
One key element that may help stop a big impact if there were to be a run on bitcoin is that most holders would be sitting on paper losses only - in that most coin were created or traded at much lower values, thus the losses are not real in the sense of investment money going south.
But a 50% crash in the price (which is nothing when it has gone up 1700% this year) would be a big hit - I wonder where the bodies would be because there would definitely be some big hits with $130 billion of losses to share around
