Bitcoin Versus The Great Financial Bubbles Of The Past

In times of extreme fear, uncertainty and doubt (FUD), Bitcoiners need FUD-busting.

In 1710, almost a decade before the South Sea Bubble in England and the Mississippi Bubble in France, the essayist and author Jonathan Swift wrote the following iconic lines, echoed by many of history’s most famous writers, about truth and lies and their effects:

“… it often happens, that if a lie be believed only for an hour, it has done its work, and there is no further occasion for it. Falsehood flies, and truth comes limping after it; so that when men come to be undeceived, it is too late, the jest is over, and the tale has had its effect.”

Little did Swift know that falsehoods reminiscent of his own era’s financial manias would reemerge again and again more than three centuries later, wielded by economists who don’t know the first thing about the monetary and cryptographic invention they are more than happy to attack.

These critics of Bitcoin often mention the South Sea Bubble, Tulip mania or the Mississippi Bubble, thinking that they hold the definitive trump card. And Bitcoiners, sometimes unfamiliar with much of financial history, object that bitcoin is not in a bubble, leading to the usual impasse that we can’t readily identify a bubble until after it has burst.

Since my academic training is in financial history, I have always found another avenue to be more fruitful: object to the analogy altogether. I know a thing or two about the episodes that Paul Krugman, Nouriel Roubini and others routinely invoke — and I don’t think they know what they’re talking about.

So let’s FUD-bust the bubble analogies and educate bitcoiners in these financial-history matters.

Latest to the party of equating Bitcoin to the iconic bubbles of the past is the European Central Bank (ECB). In its Financial Stability Review last month, it stated matter-of-factly that:

“Signs of exuberance have also been observed in the renewed interest in crypto-assets, although financial stability risks appear limited. The surge in bitcoin prices has eclipsed previous financial bubbles like the ‘tulip mania’ and the South Sea Bubble in the 1600s and 1700s.”

The footnote support for this tiresome claim was a reference to that same report from 2018 (as if nothing has happened in Bitcoin in the last three years) where we find:

“Bitcoin’s growth surpassed that of other historical bubbles before it crashed in early 2018, losing 65% of its value. [the] Market capitalisation of crypto-assets remains modest despite price developments that are more extreme than those of historical bubbles.”

This is followed by an apparently incriminating graph that I re-create below. Of course, if the criteria for qualifying for the bubble hall of fame are nothing but large and rapid increases in asset prices, plenty of candidates exist,from the recent history of some of today’s dominant tech companies to your average pink sheet listed venture.

price changes for historical bubbles

*Note: Technically, “trading-day observations” which for Bitcoin means every day, SSC and Nasdaq roughly 300 days per year, Mississippi stock daily price quotes around the peak, but roughly weekly before then, and Tulips, eleven index-price points as calculated by Thomson (2006) on the hundred or so scant historical prices we have for various bulbs in 1636 and 1637. 

Graphically, it looks like the ECB report in 2018 had a point: Bitcoin’s rise was meteoric, fast and towered over the historic bubbles to which it was compared. The South Sea Bubble looks very modest, not even achieving a 10x gain from the £100 it had hovered around since its creation in 1711. The series for Nasdaq seems wholly out of place, barely tripling over the two years prior to its peak. By picking more concentrated indices, portfolios or individual tech stocks, we could create a higher spike, for instance by using returns of the list of the 400 or so internet companies that was published by Morgan Stanley back then (including, eToys and Eggheads as well as more successful ones like Amazon, eBay and Qualcomm). Even then, we barely see companies surpassing 10x returns.


Labeling an asset “tulips” seems like the perfect argument: tulips are adornments, with established markets, that are relatively useless and are easily mass produced. No sane person would buy them at extremely high and accelerating prices, which makes any tulip price increase the ultimate evidence of irrational financial markets and the delusions of greedy capitalists.This is why tulips has become a “byword for insanity in the markets,” according to Anne Goldgar, the scholar who has done most to uncover the real history of the 1637 “Tulipmania.”

What we know about the tulip mania is very limited, most of which was popularized by Charles Mackay over two centuries later, almost all of it relying on hearsay, selected extracts from moralizing pamphlets at the time and echoed credulously in our time by the likes of John Kenneth Galbraith and Charles Kindleberger. All had great axes to grind against the insanity of financial markets.

As presented by Goldgar, we have traces of scant trading by merchants and among the gentry of select bulb promissory notes: futures contracts that entitled the owner to a certain bulb once sprouted later that spring. We have archival evidence of a hundred or so different prices for these contracts, with few spot transactions taking place between November 1636 and March 1637, as the bulbs were planted in the ground during the winter months. Goldgar never found more than a few dozen purchases of bulbs at prices exceeding a master craftsman’s wages, and most of these were by well-off merchants who adorned their homes with one-of-a-kind bulbs set next to portraits or other decorations.

A major problem faces the construction of the bubble-like time series that the ECB so carelessly used: bulbs are not identical. Individual types were valued for unique patterns that arose with a mosaic virus that made them “break” — they were non-standard products, the majority of which never fetched any remarkable prices. Peter Garber identifies 16 different kinds of bulbs with a handful of price quotes for each. Based on a pamphlet retold by Dutch historian N.W. Posthumus in the 1920s, Earl Thomson recreated a quality-adjusted price index using a contemporary reference book for tulips. We end up with a dozen data points on a wholly unreliable index over the relevant few months.

Since no spot transactions took place in the critical weeks of early 1637, Goldgar writes that “those who lost money in the February crash did so only notionally… I found not a single bankrupt in these years who could be identified as someone dealt the fatal financial blow by tulip mania.”

The scant quantitative evidence available does not indicate a widespread tulip craze, and neither does the qualitative evidence surrounding the Dutch bulb trade in the 1630s.

The Mississippi and South Sea Bubbles

Compared to the lack of quantitative observations for the Dutch Tulip Bubble, we are awash in them for John Law’s Mississippi scheme of 1719-1720 in France and the South Sea Company Bubble in England the following year. Both of these schemes tried to reduce government debt burdens by converting expensive annuity liabilities into equity in these trading enterprises — aimed at French America for the Mississippi company and Spanish America for the South Sea Company. What little such international trade took place was small-scale, unreliable, often unprofitable and instead the respective schemes became vehicles for financial engineering.

Law’s monetary takeover of the French state started with his establishing a note-issuing bank, Banque Générale, that issued stock in exchange for government bonds that traded below face value. It also promised its depositors to return the same amount of coins deposited, regardless of any devaluation of the currency that might occur, a valuable insurance proposition against monarchs prone to misusing their monetary prerogative. In 1717 the state began accepting the bank’s notes as payment of taxes, firmly establishing Law’s creation in the banking and monetary sphere.

Law organized what became known as the Mississippi Company, owning the monopoly rights to trade on the French lands along the Mississippi River. The company expanded gradually to hold the rights to most of France’s international trade. In January 1719 Law’s bank, now holding lots of government bonds and having issued paper (notes and equity) to fund itself, was taken over by the government and renamed Banque Royale. Later that year, Law merged the financial empire with his trading empire and then effectively became finance minister: he controlled foreign trade, held most of the government’s debt and was in possession of the money printer.

He expanded the bank’s note issuance by 5x in the latter half of 1719, coinciding with a 10x of the price of Mississippi Company stock, which topped out in January 1720. After a heavy sell-off Law restricted gold withdrawals from the Banque, made its paper notes legal tender and promised to exchange these notes for company stock at all-time highs, before repeatedly devaluing the shares in the following month. By the end of the year, prices of ordinary goods had jumped, the Mississippi company stock was back down to where it had been before Law’s bubbling and Law himself fled the country.

The South Sea Company, which began its upward trajectory roughly when Law’s scheme was collapsing, was created almost a decade earlier in a tried and tested way for the British government to reduce its debt expenses: by auctioning off the privilege of amassing government debt. By consolidating many sprawling annuities and other financial debt instruments into equities in a single, easily tradable asset, the Company made servicing the debt easier for the government and the asset more liquid for the creditor.

The first conversion in 1711 swapped new South Sea equity at par for government annuities trading at heavy discounts (an instant profit for the debt holders). Things changed toward the end of the decade: if one could swap some government debt, why not all of it, especially those portions of the debt that the government itself couldn’t redeem? As its shares had sailed above par value of [£]100, any conversion at par would again release instant gains to those handing in their annuities. In the proposals handed to the government in January 1720 the Company diverged from this practice, which allowed the conversion to take place at market price. This, writes Thomas Levenson in a new book on the South Sea scheme, was “the hinge on which all of what was to come would turn.”

Squaring off with the other moneyed firms — the Bank of England and the East India Company — the South Sea Company promised up-front gifts to the government in exchange for the privilege of converting debt while its stock exploded in secondary markets. The higher the stock rose, the fewer shares the company’s directors would have to part with to satisfy the annuitants, while keeping the remaining shares for themselves to sell or lend out later. The parliamentary deal allowed them to swap new shares at market prices, but account for them at par: redeeming £100 worth of government debt with South Sea stock trading at £100 would require the full share, but that same share could redeem twice as much debt if the South Sea stock exchanged hands at £200. Still creating and issuing two new shares, but only having to give up one to satisfy debt holders, the company directors had an extra share to do with as they wished. “The more South Sea shares rose,” writes Levenson, “the more the Company would be worth — which would make shares in such a valuable enterprise still more desirable.”

Over four fund-raising subscriptions during the spring and summer of 1720, the Company effectively created leveraged products as only a part of the stock was paid up front. As the scheme only worked while Company stocks soared higher, new issues weren’t delivered to subscribers until December 1720, preventing sell-offs (due to a lock-up period). Subscriptions were issued at progressively higher prices; The Company lent money to investors with Company stock as collateral; its directors convinced Parliament to ban other joint-stock companies; it closed its transfer books (effectively turning spot trading into futures) for two months at the stock’s price peak, before struggling to pay an outsized dividend. As with many other debt and leverage-fueled schemes, eventually the fuel runs out, and just like leverage increased the power on the way up, its cascading effects of panic-selling exacerbated the downfall. Notwithstanding the Company’s many attempts to keep it afloat, the stock collapsed in the fall of 1720 back to around £130, where it had started the year.

Still, it wasn’t valueless: its fundamental value was not, pace Roubini, zero. After criminal proceedings and restructuring by Parliament, it became a government-bond holding company operating until the 1850s.

Merchants, paupers and half the nobility were obsessed with South Sea stock in the spring of 1720, and at some point the market capitalization of the company rivaled the value of all land in England. That makes it a much more plausible candidate for a financial mania, but would by that same metric exempt bitcoin: its total market capitalization is around a trillion dollars while the world’s equity markets, bond markets and properties have a combined market value of more than a hundred times that. If bitcoin is in a South Sea-style bubble, it has a long way left to go.

If bitcoin had dwindled into obscurity after its December 2017 peak, the arguments by the Krugmans, Roubinis and ECB pundits of the world would make some sense: it does indeed rival the great bubbles of the past, rising to prominence before collapsing (albeit in price movements, rather than economy-wide impact). Those who called victory when bitcoin’s dollar price fell from grace in early 2018 must view what happened next with great inconvenience. Roubini frequently says that the fundamental value of bitcoin is zero yet the price moves further and further away from his long-standing prediction. If I extend the exact same chart to what happened after the ECB’s 2018 report, we get this:

price changes for historical bubbles

The price of Mississippi stock in 1719 didn’t fly toward the moon so much because of deluded investors or clueless citizens, but because John Law took over the apparatus of the French state, printed endless amounts of money and propped up the Mississippi share prices through buybacks and price guarantees. The South Sea Company bubbled its stock by routinely faking its accounts, bribing MPs, pausing spot trading and getting Parliament to ban competitors.

It’s hard to see this as analogous to Bitcoin. Few bubbles run up like bitcoin and collapse only to return stronger than ever a few years later. It took Nasdaq more than 10 years to return to its prior high, consisting mostly of new companies as well as the successes of the late-1990s. Particular tulips of 1637 fell out of fashion; the Mississippi company was wound down; the South Sea Company returned to its existence as a dull pass-through vehicle for government interest payments. In contrast, the truly flourishing companies to come out of the dot-com era (Amazon, eBay, Apple) have made their investors wealthy, even those who bought at the peak of the bubble.

The claim of those who predict a South Sea Company-like collapse for Bitcoin still have time on their side, and with recent events, even fuel on their fires. But they don’t have history. Reviewing the iconic bubbles to which Bitcoin gets compared, it looks much less like these alleged financial manias and much more like the resilient success stories that came out of the dot-com era.

Jonathan Swift followed the quote above with “That Truth (however sometimes late) will at last prevail.” Let’s hope he’s right.

This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.


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Bitcoin’s Kimchi Premium Bubble: Inflation, Deflation and Consequences

The Kimchi premium—the spread between Bitcoin price on South Korean exchanges and Western exchanges—has always been an indicator attracting people’s attention in the bull market. The source of this spread is rooted in the inability to easily get a substantial amount of USD out of the country due to institutional frictions. Thus, this lack of arbitrage opportunities coupled with a huge demand for bitcoin among Koreans makes bitcoin trade at a premium on Korean exchanges when speculative frenzy hits the masses.

As with any bubble, at one point, when money inflows stop propping up the price, it is going to crash or at least correct somewhat. Sometimes, even a small pin is enough for the bubble to start deflating. This is exactly what happened today when Upbit suspended its deposits and withdrawals. The premium has fallen from 21 percent and hit 10 percent at its lowest point.

Chart via Tradingview

Chart via Tradingview

This is not the first time this bubble emerged and popped. In the peak of the 2017–2018 bull run the Kimchi premium reached 51 percent before it all came crashing down. Caution from this event is one of the reasons why the market has thrown a tantrum today. Traders see the Kimchi premium correction as a top signal and the harbinger of an overall market correction.

Chart via Tradingview

Chart via Tradingview

However, this is exactly a case of the tail wagging the dog. According to CoinGecko, the total bitcoin trading volume of the five major Korean exchanges—Bithumb, Upbit, Coinone, GOPAX, Corbit—makes up to 3.2 percent of the global bitcoin trading volume. Even in a case of the collapse of the bubble on Korean exchanges, it should not affect the global price much. Local bubbles come and go, which is not that significant.

What is significant, however, is the attention people pay to these sorts of things. Risk-on assets such as bitcoin are dominated by narratives and the Kimchi premium narrative is still a powerful one, if the amount of major media outlets and Twitter accounts mentioning it is any indicator. As with any narrative, though, it usually takes several invalidations for it to stop occupying people’s minds.

Will today’s premium correction make the premium disappear? Probably not. The bullish narratives for bitcoin are still untouched, the demand for bitcoin didn’t go anywhere, and the institutional frictions to withdraw money from the country are still in place. All this makes a perfect cocktail for the bubble to continue existing.

It is also worth noting that the Kimchi premium is not specific to bitcoin and is present for some other cryptocurrencies too, reflecting the arbitrage opportunities taken by traders and the overall bullish sentiment among Koreans.

The Kimchi premium can be a good and reliable indicator of the demand for bitcoin when taken within the context of its origin and combined with other factors affecting bitcoin’s price. On the other hand, used separately, it can give birth to false narratives and bring a lot of misinformation and damage. As with any indicator, one should be cautious to use it and never make any investment decisions based on this particular piece of data alone.

This is a guest post by Lex Moskovski. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.


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Profit Reaped by Bitcoin Addresses Dips to a 3-Month Low amid a Week-Long Price Correction

The number of Bitcoin (BTC) addresses in profit plunged to a 3-month low as the price of Bitcoin remained in the bearish zone for days.

Per Glassnode data, the number of Bitcoin addresses in profit is pegged at 30,782,698.006, a figure based on a 7-day Moving Average (MA).

It is not surprising that many Bitcoin addresses are at a three month low in terms of profit. The price momentum of Bitcoin since the start of 2021 has been somewhat volatile. The cryptocurrency surged in price for the first week of the year, picking up from a growth of over 300% it recorded in 2020 to set new all-time highs above $41,500. 

This all-time high record prompted a lot of bullish projections on Bitcoin by analysts and also sparked a FOMO (fear of missing out) wave among many investors who bought the coin at inflated prices. With Bitcoin continually being in loss over the past week, many of the addresses which served to previously bring the number one cryptocurrency above $35,000 may have contributed to the crashing statistics.

At the time of writing, Bitcoin has lost 1.63% in the past 24 hours and experienced a 10.76% drop in the past week. Each Bitcoin is now worth $31,723.06.

Are Bitcoin Skeptics Right About The Bull Run Being A Bubble?

The latest Bitcoin bull run picked up from December 2020 to mid-January 2021 has constantly been touted as a bubble that is doomed to burst when the frenzy ends. One of the proponents of this notion is Jeffrey Gundlach, a bond fund manager, who noted that the BTC began to look like a bubble when it surged above $23,000 in this ongoing bull run.

The sentiments of investment veterans like Gundlach may prove true should the price of Bitcoin continue to underperform, despite the expectations from HODLers.

Image source: Shutterstock


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Tesla Bull and ARK Invest CEO Cathie Wood Thinks more Tech Companies Will Eventually Buy Bitcoin

As Bitcoin has gained recognition among Wall Street veterans and Silicon Valley with its surge to new all-time highs in recent months, many renowned investors have increasingly turned to view the digital asset as the ideal hedge against inflation.

Recently, Bitcoin doubled its old all-time high of $20,000 set in 2017, by soaring to hit more than $41,500. It has since pulled back, trading around the $31,000-$33,000 level. Currently, it is trading at $31,605.25 on CoinMarketCap, and is down a near 10% in the past seven days. However, although it is currently consolidating, many investors have predicted that Bitcoin will continue to rise in price.

Tesla bull makes predictions on Bitcoin

Among the many seasoned traders backing Bitcoin is Catherine “Cathie” Wood, the CEO and CIO of Ark Invest, a major investor in Tesla. Wood is among one of the most reputed figures in Wall Street, having called bullish price targets for Tesla while many others were skeptic.

Wood now disclosed her predictions for Bitcoin, touting the cryptocurrency’s potential as a hedge in an interview with Yahoo Finance. The Ark Invest CEO explained that the wave of institutional support backing Bitcoin is far from finished, and that Silicon Valley was likely to become a major investor in the future.

Wood said:

“I think we’re going to hear about more companies putting this hedge (Bitcoin) on their balance sheet…particularly tech companies who understand the technology and are comfortable with it.

She added:

“I believe there is no better hedge against inflation than bitcoin.”

Like many other seasoned investors, Wood is bullish on Bitcoin. She disclosed that many corporate companies have asked her whether it was a good idea to invest in cryptocurrencies and Bitcoin. In tandem with Wood’s views on Bitcoin, Ark Invest’s recent research report indicated:

“If all S&P 500 companies were to allocate 1% of their cash to bitcoin, its price could increase by approximately $40,000.”

Institutional interest in Bitcoin escalates

Last year, the underlying narrative of Bitcoin shifted, as institutional supporters increasingly embraced the asset and added it to their treasury reserve. From hedge fund manager Paul Tudor Jones to Gemini co-founders Cameron and Tyler Winklevoss, Bitcoin was touted as the best way to beat inflation, following an unprecedented period of economic turmoil triggered by the pandemic and the Federal Reserve’s stimulus package plans. This resulted in many seeking out hedges to store their wealth, as the dollar depreciated with the Fed’s drastic money printing measures.

MicroStrategy was among one of many to start hedging with Bitcoin, followed by Square, and Stone Ridge Asset Management. The largest Bitcoin whale out there, Grayscale Investments, has also served to drive up the institutional adoption in Bitcoin. The rising popularity of Bitcoin even prompted MicroStrategy’s CEO, Michael Saylor, to advise Tesla founder Elon Musk to hedge with the crypto.

Ark’s team said:

“Square and Microstrategy, both with balance sheet investments in Bitcoin, are showing the way for public companies to deploy bitcoin as a legitimate alternative to cash.”

The investment firm also predicted that Bitcoin’s price will skyrocket and hit anywhere between $1 trillion and $5 billion in the next five to ten years. This is up more than $600 billion from today’s value.

Are Bitcoin and crypto caught in bubble territory?

Although many have predicted that Bitcoin will eventually hit higher price marks in the future, some remain skeptic, calling Bitcoin’s exponential growth to be indicative of a bubble.

Previously, Mavericks owner Mark Cuban had said that he thought that the current cryptocurrency market was stuck in bubble territory, similar to the internet stock bubble in the late nineties. Although he suggested that Bitcoin and Ethereum will likely thrive, among with a few other leading cryptocurrencies, the seasoned investor predicted that even more crypto projects will fail.

As cryptocurrencies are relatively nascent as an industry, it may be too early to pinpoint exactly where Bitcoin’

Image source: Shutterstock


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Blockchain Bites: Bitcoin Bubble, Toil and Trouble

Bitcoin shed a couple thousand dollars in overnight trading, while larger wallet addresses appear to be consolidating their holdings. Meanwhile, Treasury Secretary nominee Janet Yellen said crypto is a “particular concern” and Web 3.0 advanced with Brave’s IPFS integration.

At around Bitcoin block height 666920, President-elect Joe Biden will take office. During his last night at the White House, President Donald Trump issued a list of pardons including Ken Kurson, a former Ripple board member and crypto media man. Notably absent was Ross Ulbricht, the founder of the Silk Road darknet marketplace and antihero figure among Bitcoiners.

Top shelf

Yellen’s concerns

Cryptocurrencies are “mainly for illicit financing” and terrorist financing, Treasury Secretary nominee Janet Yellen said Tuesday at a Senate hearing. The staid remarks are par for the course among regulators, though indicate revamping crypto regulation could be on the docket during her tenure. My colleague Nikhilesh De wrote about what to look for during the Biden administration.

Web & internet redesign

Brave, the privacy-focused web browser used by 24 million, has integrated with the InterPlanetary File System (IPFS), which is essentially a redesigned internet protocol with censorship resistant properties. Brave users can now more easily access IPFS sites and even run a node on the distributed system.

A series of disappointments, the tech startup that raised $4 billion through an initial coin offering to develop the EOS blockchain network and its underlying EOSIO software, took a hit when a key executive stepped down 10 days ago. CoinDesk’s Brady Dale dives into the disappointments and power struggles at the company, including one over what to do with its 140,000 BTC stash. It’s worth a read in full.

Quick bites

COINBASE BOUGHT: Staking service Bison Trails. (CoinDesk)

RETAIL INTEREST: India’s largest crypto exchange launched an app to make small crypto purchases easy. (CoinDesk)

CBDC PITFALLS: The European Commission has joined the European Central Bank to study a digital euro before development starts. (CoinDesk)

DOCUMENT DUMP: Bitfinex will finish overturning documents related to an $850 million Tether loan to New York state prosecutors in the coming weeks. (CoinDesk)

51% ATTACK: Privacy coin Firo saw 300 blocks rolled back. (Decrypt)

PORN PAY: Pornhub added XRP, BNB, USDC and DOGE as payment options. (The Block)

JOON IAN WONG: Explores the future of media and social tokens. (The Block – op-ed)

GREEN MINING: How to make bitcoin mining eco-friendly. (CoinDesk opinion)

Market intel

Wall of wallets

With bitcoin in the red, shedding some $2,600 on Wednesday, traders are consolidating. The number of addresses holding at least 1,000 BTC, has risen from 2,407 to a new lifetime high of 2,438 in the past seven days, according to data source Glassnode. “It remains to be seen if persistent buying from large investors translates into a quick recovery,” CoinDesk markets report Omkar Godbole writes. “The odds, however, appear stacked against a notable price drop.

At stake

Toil and trouble?
The question on everyone’s mind is whether this rally is sustainable. After a parabolic ascent that brought bitcoin above $40,000, a level more than double a previous all-time high set in 2017, the cryptocurrency has seemingly settled in a new normal around $35,000.

Daily trading has seen a level of volatility typical for digital assets, with 5% market moves common on the intraday charts. But it’s still an open question whether bitcoin will continue to set new highs above $40,000 in the near term.

JPMorgan analysts have cited a long-term bitcoin price target of over $146,000, based on a comparison to gold. While bears still think the decade-old crypto could collapse to $0. That’s quite a range of opinions!

In a recent survey of “market professionals,” Deutsche Bank found a whopping 87% think investments across asset classes are overheating. More than half think it’s more likely for bitcoin to halve than double within the year. Though even more think the same of Tesla, one of 2020’s best performing bets.

It’s no secret that traditional and digital assets are on the ascent due to an unprecedented amount of U.S. dollars that have flowed into the financial system, as part of a coronavirus recovery plan. Money is cheaper than ever. Interest rates are nothing and approximately 23% of U.S. dollars in circulation were printed last year.

It’s for this reason that some keen observers think it’s not just bitcoin that’s in a bubble, but the entire financial system. Jeremy Grantham, co-founder of GMO, a major investment firm, said “this event will be recorded as one of the great bubbles of financial history,” in a letter to investors. He cited, “extreme overvaluation, explosive price increases, frenzied issuance and hysterically speculative investor behaviour.”

Still, many crypto analysts think there’s something different about bitcoin. Driven by increasing institutional investments – from the likes of hedge funds and publicly-traded companies – the recent market cycle sets itself apart from the retail exuberance seen three years ago.

As CoinDesk’s Director of Research Noelle Acheson noted in a recent newsletter, “It could also be argued that bitcoin is the anti-bubble, that its price is going up because of bubbles elsewhere in the economy. Many investors are buying bitcoin in response to what they see as a massive sovereign bond bubble, which they believe the government will try to deflate by printing money.”

Acheson argues that the label “bubble” implies there’s a discrepancy between an asset’s price and underlying value. The question with bitcoin is determining its intrinsic value. That’s a tough proposition, considering bitcoin’s users are still working out what the cryptocurrency’s use case is, she writes.

Over the past year, the belief in bitcoin as a hedge against inflation has steadily grown in popularity. Even if this idea is true, it wouldn’t undercut bitcoin’s usability as a payment tool to buck financial gatekeepers, or as a way for anyone to speculate on macro trends.

Bitcoin’s open system is non-discriminatory. It can be whatever you want it to be. As Bloomberg journalist Tracy Alloway put it, “[T]here will always be a fresh bull case for Bitcoin waiting in the wings. In that sense, it’s really the perfect post-modern financial asset for a post-modern financialized economy.”

So is bitcoin in a bubble? Well, it depends on what you mean by bubbles and what you mean by bitcoin.

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Is the Crypto Market about to Burst? Mark Cuban Compares Crypto Downtrend to Internet Stock Bubble

After undergoing an incredible surge, with the market capitalization of the crypto market crossing the $1 trillion mark, many cryptocurrencies have considerably dropped in value. This has served to flush out more than $200 billion in market value as Bitcoin (BTC), the largest cryptocurrency by market cap, dropped. It is now trading at around $35,819.00 at the time of writing, down approximately 6% in the last 24 hours after hitting a record high of $40K at the end of last week.

Along with BTC trading lower, most cryptocurrencies have followed suit. Ethereum, the second-largest cryptocurrency by market cap, is also down 10% in the last 24 hours, although it has still managed to stay above the $1000 critical support level.

BTC and ETH will beat the crypto bubble

Shark Tank entrepreneur and NBA Dallas Mavericks owner Mark Cuban commented on the cryptocurrency market’s downtrend and hinted that the current situation was indicative of a stock bubble, in which asset prices massively crash after riding on highs for a sustained period of time. Cuban said:

“Watching the cryptos trade, it’s EXACTLY like the internet stock bubble. EXACTLY. I think btc, eth, a few others will be analogous to those that were built during the dot-com era, survived the bubble bursting and thrived, like AMZN, Ebay, and Priceline. Many won’t.”

Cuban hints that Bitcoin (BTC) and Ethereum (ETH) will likely thrive despite the current bubble territory that seems to have hit the cryptocurrency sector, just like some tech stocks who beat the dot-com bubble in the late 1990s, namely Amazon, Ebay, and Priceline. During that period of time, many tech-related stocks rose considerably in value due to excessive speculation, but the stocks quickly went bust by the end of 2001, resulting in a market crash and steep losses for investors.

Being the largest cryptocurrency by market cap, Bitcoin has been largely backed by institutional support and will likely continue to rise in value in the long run. The same is likely to happen for Ethereum as well in 2021, as there have been talks that ETH futures will be rolled out in 2021 by CME Futures, given that the demand for Ethereum is growing.

Crypto and other investments driven by perfect sales pitch

Cuban said that the reason behind cryptocurrency price surges was the same as that behind gold – according to him, it was simply a question of supply and demand. The likes can be influenced by a perfect sales pitch that tugged on investors’ FOMO (fear of missing out) strings – that the asset was scarce, and one must therefore have it before it was too late. For Cuban, it is as simple as that. The Shark Tank personality said:

“As during the dot-come bubble ‘the experts’ try to justify whatever the pricing of the day is. Crypto, much like gold, is a supply and demand driven. All the narratives about debasement, fiat, etc are just sales pitches. The biggest sales pitch is scarcity vs demand. That’s it.”

Cuban is not the only bull who thinks that Bitcoin is caught in bubble territory. Jeffrey Gundlach, the CEO of the DoubleLine Capital LP, also shared his views and said that Bitcoin looked like it was about to plummet at any moment.

Cuban said that the best way to go about investments was to “learn how to hedge.”

Peter Schiff remains skeptical about crypto

Gold bull Peter Schiff, on the other hand, has long been critical of the real value of cryptocurrencies, having previously proclaimed that Bitcoin was not unlike a pyramid scheme, and artificially inflated. The investor much preferred conventional stocks like gold and silver to hedge, rather than digital assets. He now hit Cuban back with a comment, saying:

“The difference is that some of those early internet stocks actually had real value. So they survived and ultimately thrived. None of the cryptos have any real value so there will be no winners. They will all lose.”

Image source: Shutterstock


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Bitcoin (BTC) $ 38,029.19 0.08%
Ethereum (ETH) $ 2,089.91 2.40%
Litecoin (LTC) $ 70.08 0.00%
Bitcoin Cash (BCH) $ 222.79 0.22%