The rapid rise in the price of bitcoin this year has caused financiers to issue warnings that it may be in bubble territory. That list includes Warren Buffett, Jamie Dimon, Howard Marks, Jack Bogle, and any number of other respected investors with outstanding track records.

In fact, it's kind of hard to argue otherwise. Bitcoin is like a tulip; it doesn't generate value. If you buy a stock, you're buying a portion of the underlying company's earnings. If you buy a bond, you're promised interest payments. If you buy real estate, you get land that you can rent.

This suggests that the growth in bitcoin prices this year must be speculative, as there's no underlying value that's being generated to justify the rise.

A line chart showing the rise in bitcoin.

Data source: Blockchain.info. Chart by author.

Yet this shouldn't be taken to mean that the rapid rise in bitcoin's price is wholly irrational.

Indeed, perhaps it's the asset that is most accurately reflecting the heightened risk in the markets today, given the vast amount of uncertainty in the political and policy realms. It's too early to say for sure if this is the case, but it would make sense given that, as a digital currency, it could be seen as an alternative to holding hard currencies, which could take a hit from the growing sense of unease coursing through the markets.

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