Bitcoin is a bubble that will 'end in tears,' says billionaire hedge fund manager

Bitcoin is a bubble that will 'end in tears,' says billionaire hedge fund manager
The current bitcoin craze shares many elements of the 17th-century Dutch tulip mania bubble, according to Ken Griffin, founder of the $27 billion hedge fund Citadel.

“I get very worried that people buying bitcoins don't really understand what they're participating in other than the headline stories that it keeps going higher and ‘I want to make sure I don't miss this opportunity to make some money,’” the investor said in an interview with CNBC.

According to Griffin, people may confuse bitcoin with the “very profound” application of blockchain technology that underpins the cryptocurrency. Blockchain, a mechanism based on a decentralized ledger, is used to verify and record transactions that are at the heart of digital currency. The system is seen by many economists as the potential to fundamentally change the global financial system.

“Blockchain's a very interesting technology that will have some very profound applications for society over the years to come,” the billionaire said.

On Monday, bitcoin hit the $10,000 mark on the world’s biggest exchanges for cryptocurrencies. Bitcoin started the year at below $1,000 and has climbed 50 percent in November alone. The current market cap of the cryptocurrency is about $167 billion.

“So is it a fraud? No. But these bubbles tend to end in tears. And I worry about how this bubble might end,” the billionaire said, referring to today’s bitcoin frenzy.

Financial experts, including bank executives, stockbrokers and investors have been split over the cryptocurrency.

JPMorgan CEO Jamie Dimon has criticized bitcoin and called it a “fraud.” Notorious financier Jordan Belfort called initial coin offerings (ICOs) a scam. Wikipedia founder Jimmy Wales also warned investors from participating in ICOs.

At the same time, Khaldoon Al Mubarak, the head one of the world's biggest sovereign funds, said he doesn't believe bitcoin is a “fraud,” urging the critics to be “open-minded.” Mike Novogratz, the former macro hedge fund manager at Fortress Investment Group, expects major institutional investors to start offering bitcoin or similar products as an investment option within six months.

More importantly, cryptocurrencies are gaining the attention of institutional investors. The Chicago Mercantile Exchange (CME) plans to list futures in the cryptocurrency as soon as in December. JPMorgan, the CEO of which promised to fire everyone who was involved in bitcoin trading, is mulling the idea of allowing its clients to trade bitcoin futures. Some investors are buying and launching their own crypto-funds.