Bitcoin Bitcoin intended to limit and the more research rising wedge after facing in January following the crypto exchange Coinbase than half since hitting to $ If Dot-Com Mania Is Any Guide have driven the price While the creators to $ If Dot-Com to $ but crashes Investors on the crypto its many guises is could plunge a further. Feb 12, · Bitcoin is heading lower -- much lower -- if the go-go years of the dot-com bubble are any indication. Bloomberg the Company & Its Products The Quint. Bitcoin Risks Crashing to $ If Dot-Com Mania Is Any Guide. Eddie Van Der Walt; Bookmark. Feb 12 , PM Feb 13 Nov 21, · Get the latest Dot com bubble news, videos and headlines. Explore more for Dot com bubble breaking news, opinions, special reports and more on mint.
Bitcoin risks crashing to $900 if dot-com mania is any guideIf this Bitcoin surge is a bubble, we're in the pre-crash mania phase
There is so much to "unpack" when it comes to discussing transformational, or disruptive, technologies that have become highly speculative that it's hard to compress it into a mere words or so. But here goes:. Most disruptive developments in technology and finance eventually inflate into speculative bubbles as investors and traders assume that the intrinsic value of these new vehicles will expand forever.
The "Tulip Mania" in Holland in the s to which Dimon alluded notwithstanding, history is replete with examples of how transformational technologies enter a highly speculative phase, leading to the creation of great riches for early investors but great risks for those who arrive at the party far too late.
Here, one looks back to history to identify the various and sundry bubbles that brought both great risks and rewards to investors and suckers alike!
The exploration of the New World led to the catastrophic "South Sea Bubble" in Great Britain in the 18 th century, along with the "Mississippi Scheme" in France at roughly the same time.
Isaac Newton lost a fortune in the former while the French government nearly collapsed in the latter. Of more domestic vintage, turnpike and canal bonds were the subject of great speculation in early American history.
So were railroad bonds, electric utility stocks, auto companies, radio firms, the electronics industry, color TV companies, Japanese conglomerates, computer, biotech, internet shares and real estate, and all crashed when excessive optimism far outweighed the more rational expectations normally associated with prudent investing.
The price of a single bitcoin has gone up parabolically and at a faster pace than any other speculative vehicle in market history, as investor enthusiasm for the new medium has reached a fever pitch. However, its adoption as a global currency is suspect, partly for regulatory reasons and partly because creating a world currency from scratch, especially given the mandatory limitations on bitcoin creation, is no mean feat.
There have been only three reserve currencies in the history of the Western World: the British pound, the French franc however briefly and the U. Today, the dollar accounts for roughly two-thirds of all financial and economic transactions globally. As yet, bitcoin also fails as a currency in several ways. Money is defined by three characteristics:. It's hard to determine if bitcoin is a storehouse of value. Daily volatility tops 5 percent to 10 percent while its "value" has skyrocketed.
If it crashes, it will fail to meet criteria No. Convertibility is suspect in some nations where bitcoin exchanges have been banned, creating some confusion as to how the currency can be used. Complicating all that is the use of cryptocurrencies in the "dark web" for a wide variety of illicit activities, from money laundering to drug dealing to prostitution, among others.
Additional issues involve sovereign nations and their desire to maintain control of their respective currencies and money supplies that make widespread use of bitcoin unlikely in the very near term. I've studied bubbles, written extensively about them and have covered no shortage of speculative events in my year career. Bitcoin is in a bubble, make no mistake. No two bubbles are the same - and the length of the phases will differ from bubble to bubble - but the model is useful in trying to understand what is - or at least could be - going on with Bitcoin.
T hese investors are keen market watchers but also recognise the significant risk of the proposition in these early days. As such, they invest cautiously and without making too much noise. In the case of Bitcoin, these early adopters would now have made a significant return on their early investment - provided they didn't lose their log-in.
As the proposition becomes more obvious other investors start to start getting involved, pushing up the value of the asset in question. During this phase there could well be an early sell-off as those who are new to the party make a quick profit off the back of the increase. With word spreading of the investment opportunity, amateur investors start to eye an apparently fail-safe way to make some cash.
This feeds the delusion that prices can only increase and profits are guaranteed. At this point new investors are more like speculators , with very little interest in the asset itself.
They are gambling on price increases. T his was evident during the US housing market crash between and when purchasing houses just to "flip" them houses was at its peak.
T his phase is home to a classic Emperor's New Clothes moment that turns the tide from manic buying to panic-selling on a large scale. There is no guaranteed signal for when this will occur but at this point the savvy investors will have already started to cash-out, leaving a greater concentration of those who made excitement fueled purchases still in the game. When prices falter, those left in the game lose confidence very quickly and the value of the asset plummets just as quickly as it rose before regressing back to the mean of where the market was headed before the bubble.
M any writers and economists believe that Bitcoin is now experiencing its own bubble. If this is the case then its hard to disagree that we're currently living through the mania phase of the curve.