Bitcoin

Economist: If Bitcoin is a Bubble, Final Stage of ‘Panic’ on the Horizon

Thomas Delahunty | June 3, 2018 | 8:30 am
bubble
Bitcoin

Economist: If Bitcoin is a Bubble, Final Stage of ‘Panic’ on the Horizon

Thomas Delahunty | June 3, 2018 | 8:30 am

Tulip mania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels before dramatically collapsing in February 1637. Some skeptics consider Bitcoin to be the tulip bubble of the 21st century, but it’s really not so simple.

Bitcoin: Bubble or New Global Currency?

Let’s consider the theory of Hyman Minsky, the U.S. economist whose theories on financial fragility were highlighted during the 2008 collapse of the housing market. According to Market Watch, he believed that an asset bubble has five stages: displacement, boom, euphoria, profit-taking, and panic.

Under this framework, policy adviser at the Federal Reserve Bank of San Francisco, Joost van der Burgt, says that if Bitcoin is in fact a bubble, it’s likely at the beginning of the ‘profit-taking’ stage, meaning that ‘panic’ is not here yet, but is coming.

Looking back, according to van der Burgt, the ‘displacement’ phase of the bubble came in the years after the release of the Bitcoin white paper in October 2008. In those early stages, the concept of the coin was catching on, but it didn’t happen over night. Remember, Bitcoin didn’t trade above $100 until 2013.

The next phase was the ‘boom’ phase, which van der Burgt describes as follows:

“The subsequent ‘boom’ phase is characterized by prices rising slowly at first, but then gaining momentum as more and more participants enter the market, fearful of missing out.”

In this stage, fear of missing out (FOMO) saw companies attempting to capitalize on the industry by getting involved with coins and blockchain. In some cases, companies simply added the word blockchain to their names in attempts to stir up interest from investors.

Then came celebrities, like Steven Seagal and Floyd Mayweather, who attempted to get a piece of the action by endorsing newly developed cryptocurrencies. Unfortunately, in most cases, these companies with celebrity endorsements have more often that not been exposed as frauds and subsequently shut down.

Moving closer to the present, van der Burgt argues that the Bitcoin bubble entered the ‘euphoric’ stage, which he claims parallels the period leading up to the 2008 financial crisis.

“The euphoria phase is also when people start to borrow extensively to finance their investments,” van der Burgt wrote. “According to a recent survey, 18% of active bitcoin investors have financed their investments by credit card, and 22% of this group indicated that they have not yet paid off their credit card balance.”

Now, after the price of Bitcoin lost more than half its value since peaking in late-December 2017, van der Burgt believes that the market is entering the ‘profit-taking’ stage, a phase where so-called smart money begins to head for the exits, leaving only one step left before the bubble pops. “The subsequent ‘panic’ phase, should it come to that, commences when reality sets in and bitcoin’s price would substantially crash,” wrote van der Burgt.

Fortunately, van der Burgt admits that he could be wrong, and that, as we here at NewsBTC believe, the digital coin will (despite the volatility week to week or month to month) continue to rise in value. He writes:

“Then again, maybe bitcoin is different than anything we have seen before, and maybe a decade from now its market capitalization will be sky-high as it attains the status of a new global currency.”

While it is possible that Bitcoin’s rise is in some ways comparable to a bubble, it’s almost impossible to truly know. One thing worth remembering is that the coin and the underlying blockchain technology have a plethora of real-world applications (tulips, it can be said, are simply decoration), and as van der Burgt states, it could become a “new global currency.” I think that’s much more likely.

 

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  • cryptman

    Were currently in the depression stage. If bitcoin was a bubble why is Goldman Sachs spending money? 😂🤣

    • TheMagician

      Because they are giving what their investors want. They are making all of their money on commissions and fees, not buying it as an investment.

      • Greg

        But to do so they need liquidity and need to invest their own funds. Their clients will want them to be custodians of their wallets. And, much like coinbase, millions of dollars of bitcoin will be held and traded on GS ledger accounts. In short, they’ll have to spend money to make money.

        • Golden Yu

          Bitcoin is a scam 99% will suffer only 1% gain, cause it have no value, only the next stupid fool who thinks it have value and buy it, the last guy usually small investers will die in the end, while whales, pump low and dump high and the cycles repeats look at bitcoin cycle this year

          • Greg

            Who is perpetuating the scam? It’s 10 years in the making… this was a very devious and well thought out scam. I’m honored to be in the 1%, typically I’m not that lucky. Where are you getting your facts and that percentage by the way?

            BITCOIN DEFINITION: Bitcoin is an ecosystem consisting of a blockchain, token, and wallet software. Commonly known just as Bitcoin,

            These things are intrinsic to bitcoin:

            Scarcity, it is limited to 21 million in supply.
            Divisible, it can be divided into 1 million parts.
            Secure, it can not be faked, copied, cloned, or double spent.
            Utility, It can be sent to anyone, anywhere across the globe without involvement from banks or governments.
            Bitcoin Blockchain is hack proof. and gets more secure the longer the chain gets.

            If you are looking at the token alone it is worth nothing and it is not what bitcoin is.

            There is no intrinsic value to just one phone. Several million phones have an intrinsic value. Being able to place a call to anyone is intrinsic to phones. The intrinsic value for me is $100 per month. Without the intrinsic nature of a phone, it’s just a brick.

          • Golden Yu

            If everyone thinks bitcoin, can be worth 1 million a coin than there would be no poor people u dumb ass

          • Greg

            I can tell I’m dealing with a true intelect when I’m insulted right out of the gate. Where’s your supporting facts for the scam question I asked?

            I, for one, have never said bitcoin would be worth 1 million dollars. You seem to be under the presumption that everyone would actually own 1 whole bitcoin; which would make us all rich.

            Furthermore, if one day bitcoin was worth 1 million and everyone had one, that would be called inflation.

            Back in the 1700’s a bricklayer got paid $2.40 per week. By your logic, we are all rich today… do you feel rich?

            …So what was that about dumb asses?

          • Alphatic baldnomore

            Greg, you’ll find there’s no point in debating this with people who base their opinion on very limited understanding. Many people have a decent understanding of traditional currency and investment, but when it comes to Bitcoin or any cryptocurrencies for that matter, they tend to stay within their own little box. That is the real bubble.
            Thankfully there are enough people who are open minded enough to understand the vast value of bitcoin. There’s a whole new generation of investors out there who were raised in a digital culture and they will inevitably shape the future. They will fuel the growth of digital investment and currency…not gold dug up from the ground.
            People are still calling Bitcoin a bubble, as if they ignore 10 years of growth. They see only the mini bubble along the growth path and have no ability to look through the broader lens. Still saying Bitcoin has no value is either ignorance, complacency, or laziness. I believe many simply regurgitate what they read in click bait articles. I mean a network that has had 99.99% up time, FAR more secure than any other store of value, global and not tied to any country or region, aligned with a digital culture, and able to be upgraded into the foreseeable future.
            Rather than waste time trying to make them see, simply accept that they will organically be on board as Bitcoin embeds itself into mainstream use. After all, where are the people who said the internet was useless? They’re still around, they just learned to shut up and accept that they has no ability to open their mind.

          • Alphatic baldnomore

            You are wrong. By the time Bitcoin reaches a value high enough to provide insight that it is potentially on the way to a million per coin, it will already be too late and too expensive for most people to afford to buy in any large enough amount. It’s the risk takers, the early adopters and early investors that gain from these things. A quick look at history and you’ll see that It’s been that way for a very long time.
            Oh and also, just so you understand, there will only ever be 21 million Bitcoins able to exist, and that’s not enough for every millionaire on the planet to even own a single one Bitcoin. So I have absolutely NO idea why you would think there would be no poor people or where on earth you came to that conclusion. If Amazon stock rises to a million, would that mean there would be no poor people?? Your statement makes no sense.

    • Reuben

      If you don’t mind I’ve a legitimate account manager that will trade and make profits for you.
      If you’re interested kindly contact him via his email [email protected]

  • Bitcoin Matrix

    Unlimited printed fiat (no intrisic value) and financial gold (not exist) is in bubble long time.

    • kisai

      gold has as much intrinsic value as printed fiat, what you are saying is completely fanatical nonsense backed by no evidence whatsoever.

      however historical facts show gold & silver was used first for money, because it had no other use (no intrinsic value) and it was difficult to counterfeit because of its scarcity. As a consequence of using it as currency is that society (people) learned a value for gold. Otherwise it has modern applications in electronics.

      Bitcoin as currency is garbage, not for the technology because its great, it is garbage because people like you, fanatics and people like all the flooding of investors that turn it into an asset, making it so volatile no one wants to use it as currency.

      Very few people use it as mean of exchange so ITS NOT A CURRENCY JUST AN ASSET. keep playing with your toy.

      • cryptman

        Actually BTC is a currency like gold. Used as a store of value, method of exchange and the satoshi used as price valuation for other coins and tokens. Crypto is the future. Who doesn’t like to trade 24/7 with virtually no fees with portfolios up 11,000% ytd. Even if btc is manipulated in the US by shorting , Asian countries are buyers and continue to go long. I used to invest with Blackrock and took 10 years to do what I did in 1 year trading crypto.

        • TheMagician

          And if you continue to hold, you will lose it all.

        • tile00

          You obviously don’t know the requirements of currency. Btc is not currency…never will be

          • Greg

            “never will be” is quite the stretch. Volatility is related to market cap. With a much larger market cap, Bitcoin could very well be a currency… You can’t look at the acorn and say it will never be an oak tree.

          • tile00

            You’re right…who knows. I amend “never be” to “very likely will never be”… volitility is one of many things that makes it deficient as a currency that won’t be solved soon…but there are others…

          • Joe Az

            And gold and silver will never be currencies again as well, not in this digital age. Unless you are talking about “paper gold” or “digital gold”, then that’s no different from fiat or crypto/digital currencies. Not unless you are hoping for an Armageddon taking us back to the Stone Age that is.

            You need to revisit or expand your concept of “currency” in these days and times.

          • tile00

            Of course gold and silver will never be currency again…buy that doesn’t mean btc will ever will be. Too many deficiencies man…sorry about the truth…

          • Marten Chuzzelwit

            You kidding?!
            It meets all the requirements and better than the fiat alternatives.

          • tile00

            Lol…you’re response is so ignorant it’s difficult for me to take you seriously. It meets no requirements currently of currency. Id talk all day long about volitility, energy use, trust, speed, low circulation but you’ll likely continue to spit out the same Kool aid given to you by some other btc homer. But you say it meets all the requirements…so what’s the problem then? Why isn’t it used as currency??? Or do you get outside???

          • Marten Chuzzelwit

            Sergei, is that you again?

          • Marten Chuzzelwit

            Ad hominem much…
            When the discussion turns to personal attacks that have nothing to do with the conversation I take that as a win.

            Bitcoin 1, Bankster Shill 0!

      • Greg

        It is a medium of exchange, a store of value, and is not a currency YET.
        To your own point, gold and silver historically has been used as money for how long? The USD was gold and silver backed up until 1973.

        Now in comparison bitcoin is how old? Barely 10 years. You’d think you’d give the baby a chance to grow before dismissing it out of hand as garbage.

        • Alphatic baldnomore

          ^ What Greg said.

  • fujak

    another ‘expert’ telling us the market’s going to crash and burn? this fucking idiot has no clue….how can it be a bubble when it hasnt even broken out of 800billion yet?

  • T coin

    haha wow, it’s amazing how experts completely disregard the entirety of Bitcoin’s history. It’s like the never bothered to see what Bitcoin did before 2017. They seem to have no idea this has happened several times before.

    • pmf026

      yeah, and not mentioning what was happenning in 2014 (which was Wave II, we’re in wave IV on a weekly).. it’s like saying if your asset goes into deep correction – it’s a bubble then ))) wow! such experts)

  • Mitt Zombie

    Bitcoin is a terrible currency, slow and expensive. It is not anonymous so even the drug dealers are giving up on it.
    Technology wise it is already a dinosaur.

    • fui

      Of course! And fiat is fast and cheap! And drug dealers never use it! 😂🤣 😂🤣 😂🤣

    • fujak

      you’re right….and hopefully BTC will die a horrible death and cause the market manipulators who’ve been causing us so much grief lately to lose a lot of money…..

      other, faster and more promising options are available……

      • Reuben

        If you don’t mind I’ve a legitimate account manager that will trade and make profits for you.
        If you’re interested kindly contact him via his email [email protected]
        Continue

        • fujak

          get the fuck out of here…scamming piece of shit

      • Alphatic baldnomore

        These options you are referring to serve a different purpose. They will not replace Bitcoin even if they thrive. Bitcoin has already carved out its place in the future of global economy. The network it runs on is incredibly secure and robust. It will be upgraded on an ongoing basis as more innovative ways to improve its blockchain tech and speed are implemented over the years to come.

        • fujak

          i suppose everyone has their own ideas of what BTC will do in the future…..personally i’d like to see it gone so that the real world use coins dont get dumped on every time some whale decides to dump a bag of BTC…

          basically it’s BTC that’s causing the massive volatility in the market

      • Joe Az

        Yes, there are options, just like you have beads, conch shells, and yes, paper fiats. The world will never run out of options, but the real question is, can they serve the purpose? The time has come for a trustless, decentralized monetary standard.. only bitcoin and the bitcoin network is even close to serving that function at this time.

        • fujak

          nope….use BTC to make profit but if you think it’s going to stay top dog you’re going to lose out…..BTC is on its way out already……it’s the netscape navigator of the crypto world….

    • cryptman

      You have no clue about crypto 😂

    • Alphatic baldnomore

      Actually Bitcoin will almost certainly be upgraded into the foreseeable future. Was MS Windows a dinosaur in the early days (think Windows 3.1)? Was the internet a dinosaur in the 90s? No they were just in early stages of the technology. Sure, there are crypto projects, thousands, all competing to be the mainstream smart contract network or the next big platform for currency exchange, but Bitcoin already has 10 years of network stability and growth as a global store of value. It does not need to change, it just needs to get faster and evolve. Make no mistake, it will. Very much like smart phones and the internet itself, it will very likely become a part of our every day lives. Bitcoin has survived immense the negative publicity and resistance that it has endured thus far, and that robustness alone holds value beyond words.

    • Joe Az

      And technology wise, paper fiat is 700 years old outdated. Yet here we are. But indeed, it’s time is already well past, the world just needs to move along to its inevitable conclusion.

  • Laughable

    There is no “smart money” taking profits 70% off the highs….

  • bubba

    The future is for the daring.The past for the meek.Stay in the past and never to have lived.Onward brave hearts.The world is yours.

  • richard wineberg

    Bitcoin uses too much power to displace fiat currency. One see

    • fui

      Yes! Printers print freelly! Paper… 😂🤣 😂🤣 😂🤣

      • fui

        Paper has value… for wiping! 😂🤣 😂🤣 😂🤣

    • Greg

      Bitcoin is more apt to complement fiat currency than to replace it.

      Because it’s at such an infancy stage with what could be an (arguably) 50/50 percent chance of succeeding no one is looking into tech that will change the energy used/energy wasted ratio.

      My guess that if it is seen as something that is here to stay, the energy problem will soon be rectified with new R&D and L2 solutions.

      FYI, it is estimated that it takes about 70 Billion Kilowatt Hours A Year To Run The Internet

    • Alphatic baldnomore

      Interesting, they said that about the internet as well!

  • tile00

    There is no chance it will become currency…sorry

    • Greg

      Interesting, what do you draw your conclusion from?

    • Alphatic baldnomore

      It doesn’t need to replace currency in the way you are thinking…at least not in the short-term future (Though that is a real possibility in the long-term). You need to really look at what Bitcoin is, and the incredible value it brings to society on a GLOBAL level. Think of The possibilities it opens to the world as an investment choice alone. The benefit of the options it provides to allow people to own a currency that is not ruled by any one country are endless. Speak with miners and investors that have been involved for at least 5+year. Don’t rely on these click-bait articles and statements from bankers and people heavily invested in the traditional system for your insight…OF COURSE they are going to down-play Bitcoin!

      • tile00

        Appreciate the reply. I have thought it out and while I do hold a great amount of promise of the underlying tech of BTC and other block chain initiatives to change the world, I have little value for BTC itself.

        I strongly disagree with it’s promise of being a currency in any time frame. It’s deficiencies as such are pretty glaring. The volitility, trust, energy, speed, and low circulation are all big barriers. Maybe it all will be solved…but I doubt it.

        As a possible investment, if we agree that all this is is a speculative bet, that you have no idea why it goes up and down any given day or month, then we are on the same page. But that’s all it is…the hope that the next guy pays more for it than you.

  • Ade

    Lots of companies accepting bitcoin now.
    You can book any hotel or flight at cheapair. com using cryptos

  • Bluesman

    We shall see the next 6 months will tell , there are so many out there that didn’t have the balls to jump into crypto and they seem to harbour the sky is falling for BTC theory,s . The main threat i can see is gross market manipulation that can and will do real damage , hopefully the SEC can keep the worst of it under control .

  • Joe Az

    Hehe… let them run horse and buggies forever… Candles and gas lights in the dark. We are still in the early days of the bullet train, and space exploration, if you get what I mean.
    Only the brave can dare try to explore the future. No guts, no glory, Taking no risk will not yield you any rewards!

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