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Arturo Bris Bitcoin has followed a volatile path to growing acceptance since its creation in 2009 with its price fluctuating between USD 0.30 and 1135 in its short existence. But bitcoin is now accepted as payment by a growing number of mainstream merchants and has been increasingly legitimized by governments such as that of the United States, which auctioned off 30,000 bitcoins in June.

In this interview Finance expert Arturo Bris analyses the risks associated with bit coin. Arturo Bris is Professor of Finance at IMD and directs the IMD World Competitiveness Center.

Is there a speculative bitcoin bubble? Arturo Bris: This is one of bitcoin’s major risks. The reason is that its supply is restricted. Unlike normal currencies, central banks cannot issue additional bitcoins when there is excessive demand from the market. I would call it a "rational bubble" similar to what happens in real estate markets, because the rise in prices is not caused by traders’ irrational behaviour.

I suspect bitcoin is the typical instrument where at some point small, unprotected investors get caught and bear the big cost of a Ponzi scheme type of event. This could happen if the current liquidity in the bitcoin market vanishes. Big financial institutions would not come to the rescue. Banks don’t speculate with currencies, especially now that they are heavily regulated......................

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