Bitcoin’s Price Chaos Demonstrates the Importance of Sophisticated Financial Products

Between January 1 and December 17, 2017, the value of a single Bitcoin skyrocketed from under $1,000 to nearly $20,000. To match Bitcoin’s 1183 percent return during this period, an investor would have needed the equivalent of 38 years’ average equity market returns.[1] Investors and news outlets alike were entranced by Bitcoin’s stratospheric rise, and direct investment in the crypto-asset surged. But Bitcoin’s climb was followed by an equally stomach-turning fall, as its price declined 70 percent in less than two months between December 17 and February 6.[2]

Discussion of Bitcoin’s swing occurred primarily in one of two … Read more