The greatest bubble in history is popping, according to banks, most recently Barclays Bank.
Analysts at Barclays Plc saw enough similarities to develop a pricing model for the cryptocurrency that takes its cues from the world of epidemiology. Their diagnosis: Bitcoin has probably peaked.
Writing in a Tuesday note to clients, a group of Barclays analysts led by Joseph Abate argued that Bitcoin and other so-called asset bubbles chart a similar course to the spread of infectious diseases, which plateaus once the population reaches the immunity threshold.
From the note:
“As more of the population become asset holders, the share of the population available to become new buyers — the potential ‘host’ population — falls, while the share of the population that are potential sellers (‘recoveries’) increases. Eventually, this leads to a plateauing of prices, and progressively, as random shocks to the larger supply population push up the ratio of sellers to buyers, prices begin to fall. That induces speculative selling pressure as price declines are projected forward exponentially.”
While the cryptocurrency bounced back from past price collapses in 2011 and 2013, the high level of awareness this time around signals Bitcoin may never return to its peak of nearly $20,000 in December, according to the Barclays model. The virtual currency was trading at about $6,700 on Tuesday.
“We believe the speculative froth phase of cryptocurrency investment — and perhaps peak prices — may have passed,” the analysts concluded.
Is it really popping?
The term bubble tends to indicate a price no reasonable future outcome can justify. Bitcoin technology is being improved upon on daily basis with thousands of top-notch developers around the world come up with new mind-bending ideas and innovations. Smartest people from banking and other financial sectors are leaving their positions to join new blockchain/bitcoin related startups. I would bet that under such circumstances, bitcoin definitely has a future outcome that can and will justify even bigger price tag that this one now.
Bitcoin is a capped-supply currency, more users adopting and using it necessitates an increase in price. By simply tracking number of subscribers on Reddit crypto subreddits, Google Trends and other similar analytics, you can see that number of people interested in bitcoin is increasing. So, adoption is going good I would say.
We are not seeing a Bitcoin bubble starting to burst but more a case of the evolution of Crypto becoming a far more developed and evolved beast. In the last year more and more business professionals along with first time investors have entered the arena and with it the demands of the users of crypto has increased along with the businesses built on it.
Also, data indicates that still only a very small percentage of the world’s population has invested in cryptoassets, particularly in developing economies where they might be more attractive due to the difficulty that many people have obtaining access to banking and other basic financial services.
Bitcoin is special. It is not a company that could lose profitability and fail. It is certainly not a speculative real estate scam that could crumble as a result of government and bank-induced chicanery. Bitcoin is another animal.
Its value is not increasing because of marketplace lies. It is increasing because it is a life-changing financial invention. It is increasing because more people are adopting it. The “network effect” is in full swing.
It is true investors are rabid to get on board and this excitement is causing bitcoin’s price to explode, but do not confuse this with an artificially inflated bubble based on a “false truth.” In accordance with the network effect, the more people that continue to get involved with bitcoin, the higher the price will climb.
Moreover, the phenomenon of the “network effect” suggests that the inherent value of Bitcoin will increase as more people use it, which should help sustain the Bitcoin price even during periods when the market is not in a speculative frenzy.